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Women , know your

inheritance

rights

Whether you are a wife, daughter or mother, find out what you are entitled to and how you can claim it. P2

When failures are indicators of success P7

Why you should lock into high annuity rates P8

How life insurance policies are changing P10

Keep an eye on the net profit margins P16

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The Economic Times Wealth July 29-August 4, 2019

WOMEN, KNOW YOUR INHERITANCE RIGHTS Whether you are a wife, if daughter or mother, find out what you are entitled to and how you can claim it.

By Riju Mehta

I

t has never been a good time to be a woman. Shackled at home, deprived of rights in society, and subjected to gender bias at the workplace, women have borne the brunt of being the weaker sex all through history. Though the skew in rights and treatment hasn’t quite corrected itself, women are possibly in a better place today than ever before. This is because rising awareness, availability of global forums and social media to voice their anguish and angst, changes in laws to empower them, and proactive governments to implement gender neutral laws have all converged to give women a hearing and heft. Still, there are many areas that can do with a nudge to empower them, one being the succession and inheritance laws. For years, women in India have been discriminated against and denied the right to ancestral property due to various reasons. One, there is no uniformity in inheritance laws, with various religious communities governed by their own personal laws and different state tribals by their customary laws. Most of these laws discouraged passing on property, agricultural or otherwise, to women for fear of fragmentation of land holding or losing it once the woman got married. “The basic framework for inheritance differs on the basis of religion

in India and not on the basis of the nature of asset. While Hindu families and other identified religions have their own inheritance laws, inheritance rights of the remaining groups are governed by the Indian Succession Act, 1925,” says Soumya Rajan, MD & CEO, Waterfield Advisors. Second, there is low awareness and literacy among women about their own rights and, understandably, they have shown little inclination to contest in courts. Thirdly, strong patriarchal traditions have translated into fear of violence and threat of violation by their male relatives, preventing women from fighting for their inheritance rights. In fact, in several northern and western states, women give up their claim over ancestral property due to the custom of ‘haq tyag’ or voluntary renunciation of rights. This is justified on the grounds that as the father pays dowry and finances the daughter’s wedding, only sons should get the family property. “Till as late as the formulation of the Hindu Succession Act, 1956, the law was blatantly biased against women,” says Rohan Mahajan, Founder & CEO, LawRato. com. “It was only after the amendment in the Hindu Succession Act in 2005, whereby equal rights were awarded to daughters in their fathers’ ancestral property, that it became more balanced,” says Raj Lakhotia, Founder & Director, Dilsewill.com, an online will-maker.

Strangely enough, though, laws have not always been the motivating factor for women asserting their inheritance rights. According to a report by the Thomson Reuters Foundation in March this year, shooting land prices in Haryana have seen

S ER‛ D REAUERY Q

a significant rise in the number of women claiming their inheritance. Ironically, however, the inheritance laws that are supposed to empower women have also had a contrarian impact, according to a 2018 study conducted by King’s

My father had a self-acquired property and died intestate in 2000, while my mother died in 2017. I am the only daughter and have a younger brother. My brother claims I have no share in the property as I got married before 2005. Do I have a right to the property? Sukanya Kumar, Bhopal

As it was the father’s self-acquired property, the daughter, being a Class I legal heir, will get an equal share along with the son. Marriage will not make any difference to the daughter’s share. You can claim your share by filing a suit for partition. All queries have been answered by Rajesh Mahindru, Advocate, Delhi High Court

cover story The Economic Times Wealth July 29-August 4, 2019

College London, New York University and the University of Essex. The report states that awarding inheritance rights to women between 1970 and 1990 led to increased female foeticide and higher female infant mortality rates, a finding supported by the Economic Survey 2017-18. This is because some people consider girls to be a liability since the inherited property falls into the hands of her in-laws. There is also a big incentive to reward a son with inheritance, since he works on the land and creates wealth, while looking after the parents in their old age. Despite such discouraging developments, gender neutral inheritance laws are the need of the hour. What will help power these is the increase in awareness among women and quick implementation of laws. To help with the former, we list the inheritance and succession rights of women, be it a wife, daughter, mother or sister for the main religious groups in India.

Which Act applies to whom? Hindu Succession Act, 1956 Laws of succession apply to Hindus, Sikhs, Jains and Buddhists for the nontestamentary or intestate succession and inheritance.

Indian Succession Act, 1925 Applicable to Parsis for intestate succession, specifically under Sections 50 to 56.

by the Indian Succession Act, 1925, where a will relates to immovable property within the states of West Bengal, and that of Madras and Mumbai jurisdiction.

Special Marriage Act, 1954 Laws of succession in case of interfaith marriages.

Indian Succession Act, 1925 Laws of succession applicable to Christians and Jews, specifically under Sections 31 to 49.

Muslim Personal Law (Shariat) Application Act, 1937 Laws of succession governing Muslims for non-testamentary succession. Where a Muslim has died with a will, the issue is governed

GETTYIMAGES

WHAT ARE YOUR INHERITANCE RIGHTS? HINDUS The Hindu Succession Act, 1956, governs the succession and inheritance laws for

Till as late as the formulation of the Hindu Succession Act, 1956, the succession law was blatantly biased against women.

ROHAN MAHAJAN FOUNDER & CEO, LAWRATO.COM

Hindus, along with Buddhists, Jains and Sikhs. This is applicable to both women and men. The Act makes no distinction between movable and immovable property. It only applies to intestate succession

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The Economic Times Wealth July 29-August 4, 2019

Who has the right over a woman’s property after she dies? Here’s how the property of a Hindu woman devolves if she dies without a will.

HINDU WOMAN

A

If she is married Sections 14, 15 and 16 of the Hindu Succession Act, 1956, govern the manner in which the property of a married woman is passed on to heirs.

Section 14 describes what constitutes a woman’s property—both movable and immovable, owned and acquired by her. It does not distinguish between inherited and self-acquired property. It includes all property obtained through ‘inheritance or devise, or at a partition, or in lieu of

Section 15, sub-section 1 Explains the devolution of the woman’s property as per the following priority:

maintenance or arrears of maintenance, or by gift from any person, whether a relative or not, before, at or after her marriage, or by her own skill or exertion, or by purchase or by prescription, or in any other manner, and also any such property held by her as streedhana.’

Heirs of the husband

Heirs of the father

First preference to sons and daughters, including children of any predeceased son or daughter, and the husband

Section 15, sub-section 2 This explains the distribution of property depending on whether she has inherited it from her parents, or husband, or in-laws. Any property inherited by a Hindu woman from her father or mother devolves, in the absence of any son or daughter of the deceased (including kids

B

Father and mother

Heirs of the mother of predeceased son or daughter), not upon the heirs referred to in sub-section (1), but upon the father’s heirs. Any property inherited by a Hindu woman from her husband or father-inlaw devolves, in the absence of any son or daughter of the deceased (including kids of predeceased son or daughter) not upon the heirs referred to in sub-section (1) in the order specified, but upon the heirs of the husband.

If she is not married Devolution is still governed by Section 15, with no distinction between married and unmarried woman, and follows the same priority.

MUSLIM WOMAN Under Muslim Law, there is no distinction between selfacquired or ancestral property. Legal heirs are divided into two categories: sharers and residuary. Sharers get their share first and residuary get what is left. If a Muslim woman inherits property from any relation (husband, son, father, mother), she becomes the absolute owner of her share and can dispose it. If a Muslim woman wants to make a will, she cannot give away more than one-third share of her property, and if her husband is the only heir, she can give two-thirds of the property by will.

OTHER RELIGIONS The distribution of women’s inheritance, other than those who are Hindus, Buddhists, Sikhs, Jains and Muslims, is governed by the Indian Succession Act, 1925. The blood relatives of a woman inherit even in the presence of husband and husband’s relatives.

S ER‛ D REAUERY Q

I am the karta of an HUF account, which has mutual funds and bank deposits. I have a wife and a daughter, who is married. Can my wife or daughter continue with my HUF account using it after I die? Should I continue or dissolve the HUF while I am alive? V.K. Sharma, Pune

After the 2005 amendment in the Hindu Succession Act, 1956, your daughter is a coparcener in the HUF. So, after you, she can claim the HUF account. You can safeguard their interests by informing the bank about HUF members and making your daughter a nominee.

(where there is no will) and to anyone who converts to Hinduism. It has no application in case of testamentary succession (where there is a will). “The property owned by a person can be classified only as ancestral or selfacquired. Ancestral property is one that is inherited up to four generations of male lineage without any division, and the right to share in it is accrued by birth,” says Rajesh Narain Gupta, Managing Partner, SNG & Partners, Advocates & Solicitors. On the other hand, self-acquired property is the one that has been purchased by the person from his own resources or through any property acquired from his share in an ancestral property. “For a self-acquired property, the Hindu father continues to enjoy unfettered discretion to will it to anyone he wishes. This can allow him to discriminate against women with impunity,” says Lakhotia. When a man dies without a will, it devolves to his heirs according to four categories—Class I, Class II, Agnates (if two people are related by blood or adoption wholly through males) and Cognates (who are related to the intestate by blood or adoption but not wholly through males)—with first preference to Class I heirs. In the absence of any Class I heirs, the property devolves upon Class II heirs. If a man leaves no Class I or Class II heirs, the property devolves to agnates, and then to cognates. Here’s how the various women in a man’s life inherit his property if he dies intestate.

Wives

A wife is entitled to an equal share of her husband’s properties like other surviving, entitled heirs. If there are no other sharers, the wife has full right to inherit the entire property of her deceased husband. “According to Section 10 of the Hindu Succession Act, the distribution of property takes place among all heirs, including the deceased’s widow,” says Mahajan. A married Hindu woman also has exclusive rights over her individual property. She is the sole owner and manager of her

assets whether these are earned, inherited or gifted. She is also entitled to maintenance, support and shelter from her husband, and if they stay in a joint family, then from the joint family. If the couple is divorced, all issues related to maintenance and permanent alimony are ordinarily decided at the time of divorce. It leads to total severance with husband and the wife does not have any right in his estate if he dies without a will. “If during the lifetime of the first wife, the husband remarries without a divorce, the second marriage will be considered void. The second wife will not inherit anything and the rights of the first wife will not be affected. However, the children from second marriage will get a share along with other legal heirs,” says Rajesh Mahindru, Advocate, Delhi High Court. In case of an inter-faith marriage, the wife is entitled to inheritance as per the personal laws applicable to the religion of her husband. “So, if a Hindu woman marries a Muslim man without converting to

There is no inheritance or gift tax if the property is inherited from a relative or acquired through a will.

RAJ LAKHOTIA FOUNDER DIRECTOR, DILSEWILL.COM

cover story The Economic Times Wealth July 29-August 4, 2019

Islam beforehand, the marriage would neither be ‘regular’ nor ‘valid’, under the existing laws. While she will be entitled to dower (mehr), she cannot inherit her husband’s property,” says Gupta. If the husband is a Christian, typically, the wife’s religion does not prevent her from inheriting. If the husband has left behind both a widow and lineal descendants, she will get one-third the share in his estate, while twothirds will go to the latter. If there are no lineal descendants, but other kindred are alive, one-half of the estate passes to the widow and the rest to the kindred.

Daughters

“To end discrimination against women, changes in the Hindu Succession Act, 1956, were made on 9 September 2005 through the Hindu Succession (Amendment) Act, 2005, wherein Section 6 of the Act was amended,” says Mahajan. This means that now a daughter has an equal right to ancestral property as a son and her share in it accrues by birth itself. Before 2005, only sons had a share in such property. So, by law, a father cannot will such property to anyone he wants to, or deprive a daughter of her share in it. If the father dies intestate, that is, without leaving a will, all legal heirs have an equal right to the property. The Class I heirs have

Take these steps if your father or husband dies... For women to safeguard their inheritance, here are the things they should take care of on a priority basis.

STEP

1

Get multiple copies of death certificate and have them attested, if needed. This is because it is required at all the financial institutions for transferring the assets or investments, making a claim, or selling the deceased’s assets. It is issued by the zonal office of the local municipal body. For multiple copies, you can simply download these from the municipal website.

In case of mutual agreement among family members, a will is the best way to pass on assets. While nominations help in transferring movable assets like bank deposits or insurance policies, a will takes legal precedence over a nomination. If there is a discord, a will is the best option, especially in case of self-acquired property. Get a probate, if required, as it’s needed in some states.

STEP

2

STEP

3

If there is no will or nominee, in case of movable property, get a succession certificate. This is a must if there is neither a will nor a nominee, or both the parents pass away without a will. In case of immovable property, the property is divided as per the succession laws among all the legal heirs.

In case of real estate, have the property transferred in your name at the sub-registrar’s office. Here, you will need the will (with probate) or a succession certificate. Without a will, you may also need an affidavit with a no-objection certificate from other legal heirs. The next step is mutation of property, which means transferring the title in land revenue records.

STEP

4

STEP Inform the banks so that no one can withdraw the money from accounts and also file a petition for succession certificate (as mentioned earlier) to claim your share in the account balance. In case of any apprehension, also file an injunction suit to prevent other legal heirs from denying you your share in the accounts, or other properties of your father or husband.

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The Economic Times Wealth July 29-August 4, 2019

the first right and these include the widow, daughters and sons, among others. Each heir is entitled to one part of the property, which means that as a daughter you have a right to a share in your father’s property. “A share of a predeceased daughter, which she would have got had she been alive at the time of partition, shall be allotted to her surviving children,” says Lakhotia. Before 2005, the Hindu Succession Act considered daughters only as members of the Hindu Undivided Family (HUF), not coparceners. The latter are the lineal descendants of a common ancestor, with the first four generations having a birthright to ancestral or self-acquired property. However, once the daughter was married, she was no longer considered a member of the HUF. After the amendment, the daughter has been recognised as a corparcener and her marital status makes no difference to her right. Also, a daughter will have the same rights as a son to the father’s property, be it ancestral or self-acquired, irrespective of her date of birth. It does not matter if she was born before or after 9 September 2005. On the other hand, the father should have been alive on 9 September 2005 for the daughter to stake a claim over his property. If he had died before 2005, she will have no right over the ancestral property, and self-acquired property will be distributed as per the father’s will.

I am a Hindu woman, who married a Muslim man and changed my religion. My parents disowned me. Can I still stake a claim to my parents’ self-acquired property?

S ER‛ D A RE UERY Q

Saima Khan, Delhi

There is no legal concept of disowning a child, but parents can deprive a child of his share in their selfacquired property through a will. Marrying a person of another religion or converting does not deprive you of your rights. You can claim a share in their property. “In February 2018, the Supreme Court held that a daughter, living or dead, on the date of amendment will be entitled to the share in father’s property. This implied that even if the daughter was not alive on the date of amendment, her children could claim partition,” says Gupta. In April 2018, in the case of Mangalaam vs T.B.Raju, the Supreme Court held that the living daughters of living coparceners would be entitled to claim a share in the ancestral property, adds Gupta. “A married Hindu daughter also has a

Gender bias in succession laws Here are instances where women’s rights are affected due to a clear skew in favour of men. These laws need an immediate overhaul.

right of residence in her father’s house if she is deserted, divorced or widowed,” says Mahajan. In the case of a self-acquired property, he has the right to gift the property or will it to anyone he wants, and a daughter will not be able to raise an objection.

Mothers & sisters

Since a mother falls under the Class I heir category, she is entitled to receive an equal share of property of her predeceased son like other surviving entitled sharers. Besides, a widowed mother is entitled to maintenance from her children who are not dependants. The sister, after a brother’s death, being a Class II legal heir would inherit along with others as per entry II only if there is no Class I legal heir and the father of the deceased has also expired.

MUSLIMS

Woman’s property

Agricultural land

Tribal women

Muslim women

As per Sections 15 & 16 of the Hindu Succession Act, 1956, if a woman dies intestate, her self-acquired property goes to husband’s heirs, not her parents. In case of a man, the property is inherited by his relatives, not the woman’s heirs. This is a clear bias, wherein her property goes to husband’s heirs.

In some agrarian states, women don’t inherit agricultural land to avoid fragmentation of land holding. Schedule IX of the Indian Constitution has the Zamindari Abolition and Land Reforms Acts of various states that govern agricultural land holdings, and the the government’s stance disfavours women.

Customary laws of tribals are mostly patriarchal, divesting women of their inheritance rights. The Himachal Pradesh High Court ruling in 2015 and the Bombay High Court ruling in 2019 grant women rights as per the Hindu Succession Act, 1956, but tribal women in many states like Jharkhand continue to suffer.

The share of inheritance of a woman is half that of a man. Since upon marriage, a woman receives mehr and maintenance from husband, as well as inheritance, while a man only has the inherited property, it is generally considered that the woman should have a lesser share in the inherited property.

In case of Muslims, inheritance laws are governed by personal law. There are four sources of Islamic law governing this area— the Quran, the Sunna, the Ijma and the Qiya. When a man dies, both males and females become legal heirs, but the share of a female heir is typically half of that of male heirs. While two-thirds share of the property devolves equally among legal heirs, one-third can be bequeathed as per his own wish.

Wives

A wife without any children is entitled to receive one-fourth the share of property of her deceased husband, but those with children are entitled to one-eighth the share of the husband’s property. If there is more than one wife, the share may diminish. In case of divorce, her parental family has to provide maintenance after the iddat period (about three months).

Daughters

“A son always takes double the share of a daughter in the property of a deceased father. However, the daughter is the absolute owner of the inherited property,” says Lakhotia. In the absence of a son, the daughter gets half the share of the inheritance. If

If during the lifetime of the first wife, the husband remarries, the rights of the first wife will not be affected. The second wife will not inherit anything.

RAJESH MAHINDRU ADVOCATE, DELHI HIGH COURT

there is more than one daughter, they collectively receive two-thirds of the inheritance.

Mothers

A mother is entitled to receive one-third share of her deceased son’s property if the latter dies without any children, but will get a one-sixth share of a deceased son having children.

CHRISTIANS Christians are governed by the Indian Succession Act, 1925, specifically by Sections 31-49 of this Act. Under this, the heirs inherit equally, irrespective of the gender.

Wives

If the husband leaves behind both a widow and lineal descendants, she will get onethird the share of his property, while the remaining two-thirds will go to the descendants. If there are no lineal descendants, but other relatives are alive, one-half of the property will go to the widow and the rest to the kindred. If there are no relatives, the entire property will go to the wife. A Christian man can legally marry a second time only after the death of the first wife or after legally divorcing her. If he has a second wife even as his first wife is alive or not divorced, the second wife or children will have no right over his property. However, the children of a legally divorced wife have an equal share over their father’s property as that of the second wife and her children.

Daughters

A daughter has an equal right as her brother to the father’s property. She also has full right over her personal property upon attaining majority.

Mothers

“If a person dies without a will and has left no lineal descendants, then after deducting his widow’s share, the mother will be entitled to receive an equal share as other surviving entitled sharers,” says Lakhotia. These sharers could be the brother, sister, or the widow of such sibling, or the children

cover story The Economic Times Wealth July 29-August 4, 2019

cost for the holding period. Then the tax is levied as per the tax rate applicable to the owner or the transferer.

of any predeceased siblings.

HOW IS YOUR INHERITANCE TAXED? In India, inheritance tax was abolished in 1985. “There is no inheritance or gift tax if the property is inherited from a relative or is acquired through a will. However, on sale of property that has been inherited, capital gains tax is applicable,” says Lakhotia. An inherited property, either movable or immovable, is a transfer of an account without any consideration in return and, hence, it is considered a gift for taxation purposes. However, the Income Tax Act, 1961, excludes transfer of property through will or inheritance from the purview of gift tax.

S ER‛ D REAUERY Q

“Once the property is inherited, any source of income, such as rent or interest, is transferred to the new owner. Thus, when the heir receives any such income from the inherited property, he must declare it as a part of his income and pay tax,” says Mahajan.

Tax is levied on capital gains on the sale of inherited property. This gain is based on the period for which the property is held by the owner. If the inherited property has been held for more than 24 months, it is treated as a long-term gain. This period also includes

WHAT TO DO IF YOUR RIGHTS ARE DENIED?

Vinita Sarin, Chandigarh

Since the father purchased the property after selling the ancestral property, and expired after the amendment in the Hindu Succession Act, you are now a coparcener. Hence, you have an equal share in the property. You can enforce the same by filing a suit for partition.

Tax on income from property

Tax on sale of property

My father bought a house after selling the ancestral property. My father died in 2011 and my brother refuses to give me a share in the property. Can I stake a claim to my share in this property?

the period for which it was held by the previous owners. If the holding period is less than 24 months, the actual cost of acquisition and any cost of improvement are deducted and the balance is treated as a short-term gain

and taxed as per the tax slab applicable to the owner or transferer. If the combined holding period exceeds 24 months, then the transferer has the right to deduct the cost of acquiring and improvement, while adding the rate of inflation to

If a woman does not get her due share in the ancestral property, she can send a legal notice to the party denying her the right. If she is still restrained from seeking her claim, she can file a suit for partition in a civil court claiming her share. She can also seek partition of the properties occupied by other legal heirs. “If physical partition of properties is not possible, the court can auction the properties to give her share to the woman,” says Mahindru. “In order to ensure that the property is not sold during the pendency of the suit, she can also seek an injunction from the court,” says Mahajan. If the property has been sold without her consent, she can add the buyer as a party in the suit if she has not instituted a suit yet, or can request the court to add the buyer as a party if the suit has been filed.

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Why failures indicate success When a crisis hits it becomes apparent which investment is good or bad. DHIRENDR A KUMAR CEO, VALUE RESE ARCH

money mysteries Crises are not just tests, they are a mechanism of evolutionary selection. When the dud businesses fall by the wayside, it clears the way for better ones. Resources get freed up, and general quality improves.

T

here’s a really trite saying that ‘when the going gets tough, the tough get going.’ However, no matter how cliched this sounds, the fact is that it’s a cliche because it’s true. While this saying is generally trotted out to inspire students and sportspersons and so on, it’s actually of great practical use for investors. Whether it’s investment strategies, or stocks, or mutual funds, or investment managers, you cannot evaluate anything effectively unless there’s a crisis. When the expected is happening, everyone does well. Most strategies appear to be good. Most companies look like well-run outfits. Only when events deviate from the script and a crisis hits, or multiple crises hit, that it becomes clear what’s good and what isn’t. From this observation, follows a conclusion that may be surprising to some investors but makes perfect sense. Investors should welcome problems and crises in companies and sectors that they are invested in. Take an obvious example from Indian business—that of airlines. At one time, fuel was relatively cheap and so was money. Competition was modest and no one was overly interested in cut-throat pricing. Customers were used to delays and inefficiencies because no domestic airline was all that much better than any other. The base

standard was set by Air India and Indian Airlines and if an airline was somewhat better than the public sector outfits, then customers were happy and actually grateful that they didn’t have a terrible experience. So let us imagine for a moment that nothing much ever changed from the above situation. In that case, as investors, you may never have discovered that the IndiGo management was vastly more competent than the Jet Airways management. Maybe IndiGo would have done a little better sometimes, or maybe not. Basically Naresh Goyal would have appeared to be about as good an airline entrepreneur as Rahul Bhatia and Rakesh Gangwal. As we now know, that’s far from the truth, but the point is that we know this only because in terms of regulations, cost and competition, the going got tougher in the airline business. Of course, IndiGo is now facing an internal crisis and in a way we should welcome that because that’s yet another test whose outcome will tell us whether the airline will live up to its true potential. Airlines are just an example. The same is true for virtually every sector facing a crisis in India. Actually, this idea of crisis as a test for quality runs much wider. Crises are not just a test, they are a mechanism of evolutionary selection. When the dud businesses fall by the wayside, it clears the way for bet-

ter ones. Resources get freed up, and general quality improves. This is the reason why one of the most important reforms that have taken place in India is the bankruptcy law and related rules. Pretending that dead businesses are actually okay is one of the worst things to do and could be the most damaging legacy of the old Indian economy. In recent days, there has been a spate of lament on social media about how some stocks have collapsed to a 50th or even less than what they once were. I think it started with some research outfit tweeting such a list and then a chorus of investors joined in, taking this as proof that there was something wrong with the stock markets. I would argue the opposite in most cases. A book that I read recently pointed out that globally, the industry with the highest mortality rate of businesses was infotech, and yet that’s the industry that has had some of the biggest successes and has transformed our world. Is there a paradox here? I don’t think so. Computers and software have developed so magically precisely because failures are ruthlessly and rapidly weeded out. That failures should fail quickly and obviously is a great feature of any business environment and investors should look out for failures because they are much more valuable indicators than successes.

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The Economic Times Wealth July 29-August 4, 2019

Seven ways how life insurance policies are set to change The regulator has announced new rules for life insurance policies. Find out how this will affect buyers. by Preeti Kulkarni

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ife insurance products are undergoing major changes, and mostly to the benefit of policyholders. The Insurance Regulatory and Development Authority of India (Irdai) recently released the final product regulations covering term, endowment, Ulips and pension plans.

Higher withdrawals allowed in pension plans

The maximum withdrawal allowed at maturity under pension plans has been increased from one third to 60%. However, this will not bring insurance pension plans at par with the National Pension System (NPS). In NPS, the 60% withdrawal allowed at maturity is tax free. In pension plans, 60% withdrawal is allowed now but only one third is tax-free. “Withdrawal of up to one third of the corpus would be tax-free, but anything above that is taxable,” says Anilkumar Singh, Chief Actuarial Officer, Aditya Birla Sun Life Insurance. Rules have also been tweaked for premature part withdrawals. Once the five-year lock-in ends, policyholders can make partial withdrawals of up to 25% of the fund value, but only thrice during the policy tenure. However, such withdrawals will be permitted only if funds are needed for specified goals—higher education, children’s wedding, purchase or construction of a house and treatment of critical illness of self or spouse.

PHOTOS: GETTYIMAGES

Freedom to take risks, invest in equities

The change that is likely to make the maximum impact pertains to unitlinked pension segment, which lost steam after insistence on guarantees and purchase of annuities from the insurer who issued the deferred pension plan. “As of now, insurers have to give a guarantee at the vesting date, which means they have to invest largely in debt and are not able to generate higher returns. Now, this is optional. Policyholders can decide whether they want assured benefit or not,” says Singh. Those in the younger age brackets who can stomach risks and afford to stay

Regulations that mostly benefit policyholders EXISTING RULES

NEW RULES

Minimum 10 times for those under 45

Minimum seven times for those under 45

Maximum lump sum withdrawal at vesting of pension plans

One third

60%

Minimum term for acquiring surrender value in traditional plans

Three years

Two years

Annuities to be purchased from the insurer who has issued deferred pension plan

Policyholders can approach insurers offering higher rates for 50% of the corpus

Flexibility in asset allocation in pension Ulips

Guarantee meant insurers had to invest in debt products

Policyholders to decide whether they want assured returns or not

Direct premium payment for Ulip riders

Premiums for riders like accident or disability benefit accounted for by cancelling units

Direct premium payment means a larger proportion of base Ulip premium is invested

Life cover in Ulips

Freedom to choose annuity provider

invested over the long-term can choose to deploy funds in equity.

Greater choice when buying annuities

Annuity purchase conditions, too, have been liberalised. “Open market for the option of purchasing annuity, up to 50% of the investible corpus is a key change,” notes Aalok Bhan, Director and Chief Marketing Officer, Max Life Insurance. Currently, a policyholder has no choice but to purchase annuities at maturity, from the insurer who has issued the policy. Lack of competition hurts policyholder interests, as they cannot shop around for higher annuity rates. Annuity is regular, guaranteed pension income payable to the policyholder from the date of vesting till death. “Relaxation of this restriction will allow policyholders greater flexibility to seek better rates,” says Santosh Agarwal, Chief Business Officer, Policybazaar.com.

Shorter period to acquire surrender value

You needn’t wait three years for your policy to acquire a guaranteed surrender value – the amount you will receive if you decide to exit prematurely. “Irrespective of premium paying terms, policies will now acquire the minimum guaranteed surrender value if they have paid at least two years’ premiums, against three years now for policies with a premium paying term of over 10 years,” says Singh. At present, you are entitled to 30% of premiums paid (minus any survival benefits paid out) if you surrender your policy during the third year. The new rules have raised this to 35%. If you have paid two premiums, you will get 30% of the amount. In case of policies with tenures greater than seven years, insurers had to file surrender value structure with Irdai. Now the regulator has specified that the surrender values should increase progressively and converge to at least 90% as the

policy approaches maturity. Despite the rise in guaranteed surrender value, however, exiting traditional non-linked products remains an expensive and tedious affair.

Flexibility to reduce premium

“The regulations also provide policyholders the flexibility to reduce their premium after the fifth policy year,” says Tarun Chugh, MD and CEO, Bajaj Allianz Life. Being long-term products, insurance premiums have to be serviced annually and any financial crunch around the premium paying date can result in policy lapsation. Instead, now you can reduce your premiums by 50% and still keep the policy in force.

Lower life cover in Ulips

On the Ulip front, the minimum cover offered will come down from 10 times the annual premium to seven times. At present, insurers have to offer a minimum cover of 10 times the annual premium to those under 45 and seven times to those over 45. For policyholders who are not keen on the protection element, smaller cover will mean lower mortality charges. A higher proportion of premiums will be directed towards investments. However, there is a catch. To maximise tax benefits under Sec 80C and 10(10D), the life policy has to offer a cover of at least 10 times the annual premium. “For policies with seven times cover multiple, tax breaks under 10(10D) is not applicable,” says Agarwal.

Extended revival period

Policyholders wanting to revive their Ulips will now get three years instead of two. For nonlinked plans, it has gone up to five years.Insurers will have to intimate them within three months of lapsation for them to initiate action in case they want to revive the policies. Please send your feedback to [email protected]

mutual funds The Economic Times Wealth July 29-August 4, 2019

Book profits in dynamic bond funds Recent rise in returns may not sustain. Investors should also restrict exposure to 20% in debt fund portfolio.

by Sanket Dhanorkar

L

ong duration funds and gilt funds have benefited the most from the bond market rally that started about six months ago. The long duration category has given average returns of nearly 20% while the gilt fund category has delivered almost 15% in the past year. But dynamic bond funds, where fund managers have the flexibility to shift between bonds of varying maturities, have also done well, delivering 9.5% average returns in the past one year. This performance is heartening, but the patchy track record of dynamic bond funds remains a concern. Long-term bond funds do well when interest rates are falling. When rates decline, bond prices go up, which boosts the funds NAV, especially of funds holding bonds of very long durations. Short-term debt funds tend to outperform when interest rates are flattish or rising. Dynamic bond funds endeavor to be all-season offerings, allowing investors to play the entire interest rate cycle by

Dynamic bond funds have impressed lately Fund

1-year returns (%)

Edelweiss Dynamic Bond

15.6

IDFC Dynamic Bond

14.1

SBI Dynamic Bond

13.9

Kotak Dynamic Bond

13.3

DHFL Pramerica Dynamic Bond

13.0

DATA AS ON 23 JULY. SOURCE: VALUE RESEARCH.

constantly shifting between instruments of different maturities as per the fund manager’s reading of interest rate movements. They switch to longer tenure instruments when rates are expected to fall and move to short-term instruments when rates are hardening. Since these have the flexibility to switch the portfolio, they can potentially take advantage of interest rate movements in either direction. As such, these are considered ideal for investors who can’t take a

call on interest rate movements. But dynamic bond funds have been caught on the wrong foot in the past. Most funds have not been able to sustain performance at both ends. As mutual fund analyst Vidya Bala says, “Most thrive on the long end of duration, but fail to reduce the portfolio duration to the extent required when interest rates are inching upwards.” Over time, investors experience normalised returns from dynamic bond funds, closer to what one expects from short-term or accrual funds. At the same time, these exhibit lesser volatility relative to pure duration funds. Similarly, many dynamic bond funds are late to enter a bond rally. But this time, several funds seem to have played their cards right, delivering over 13% returns in the past year by focusing on long-term bonds (see table). However, the recent uptick in returns may not sustain, and Bala says investors should consider periodically booking profits in dynamic bond funds. Experts also suggest investors should not have more than 20% of the debt fund portfo-

lio in dynamic bond funds. Also, be very selective when picking such funds. Only a few of them actually take advantage of the flexibility they have.

09

insurance The Economic Times Wealth July 29-August 4, 2019

Why you should lock into high annuity rates Use the gap between the fall in 10-year yield and fall in yields of other products to lock into higher rates. by Narendra Nathan

I

nterest rates move in a cyclical manner. The yield to maturity on 10-year government bonds has come down by around 150 bps over the past year. It fell 100 bps, or one percentage point, in the past three months. Like the 10-year yield, other rates in the system also move in cycles. However, they move with a time lag, creating a short-term opportunity for investors. Experts believe the fall in yield will continue. “Chances of further RBI rate cuts are high due to concerns over economic growth and the prevailing low inflation,” says Ankur Maheshwari, CEO, Equirus Wealth Management. Lakshmi Iyer, Head of Fixed Income and Product, Kotak MF concurs. “I expect the 10-year yield to be in the range of 6%- 6.25% by March 2020 because RBI is expected to cut rates by 50 bps more by then,” she says. Let us examine the options investors should consider.

Immediate annuity

Immediate annuity offered by insurance companies can be the first option for investors because annuity rates come down slowly. Most insurance companies are yet to match rates with the falling government yield. However, the rates offered on these products are lower than that of other competing products (see table). Despite the low rates, experts say you should park a part of your retirement corpus in immediate annuity plans that offer annuity till death. “All retired people should look at immediate annuities and park a major portion of their retirement corpus here,” says Prateek Pant, Head of Products and Solutions, Sanctum Wealth Management. Immediate annuities come with different options. The most common are annuity for life, joint annuity for life with 100% annuity for partner and annuity with return of premium. So which one should you choose? It depends on your objective. “If the objective is regular income, it makes sense to go for annuity for life and not the one with return of purchase price because the IRR will be far lower then,” says Santosh Agarwal, Head of Life Insurance, Policybazaar. However, annuities are taxable and therefore, useful only for investors who are non taxpayers or are in the low tax brackets. “You can calculate the expected tax slab on the basis of expected future incomes like pension, annuities, interests, rents, etc,” says Agarwal.

GETTYIMAGES

10

In low tax bracket, Sr Citizens’ Saving Scheme is best option The next best option is to retain PPF account after maturity and make annual tax-free withdrawals Expected returns (%)

Investment limit (`)

Features

Taxability

Senior Citizens’ Saving Scheme

8.60

15 lakh

5 years; Only quarterly payouts

Taxable

PM Vaya Vandana Yojana*

8.30

15 lakh

10 years

Taxable

Public Provident Fund

7.90

1.5 lakhs p.a.

Only one withdrawal per annum

Tax free

Instrument

SBI FD (for sr citizens) Immediate annuity with ROP Defered payout plans Tax-free bonds

7.10

No limit

5-10 years

Taxable

6.8-7.1

No limit

Life time

Taxable

6-6.1

No limit

Life time or 99 years

Tax free

5.6-5.9

No limit

Bonds available for up to 16 years

Tax free

*8% rate offered for monthly option, IRR will be higher for annual option.

10-year yields are falling steadily Rates on other products have not fallen as much, creating opportunity for investors.

7.81 23 Jul 2018

7.41

7.22 19 Dec 2018

26 Apr 2019

6.46 23 Jul 2019

Source: ETIG Database, Policybazaar.

Government schemes

If you are not in the high tax bracket, no plan can beat the returns offered by some of the government-sponsored schemes like Senior Citizens’ Savings Scheme (SCSS) or Pradhanmantri Vaya Vandana Yojana (PMVVY). The rate offered on SCSS now is 8.6%. The 8% rate offered under PMVVY is for monthly pension and if we calculate it on an annual basis, the IRR goes up to 8.3%. Public Provident Fund (PPF) is giving 7.9% tax-free interest and therefore, leaving the accumulated corpus intact and using

the annual withdrawal facility is a good option. The 7.9% tax-free interest on PPF is higher than the 7.1% taxable interest on SBI 10-year FDs. However, the 7.9% being offered on PPF now may go down in future.

Deferred payment plans

Deferred payment plans of normal insurance policies is an option for those who are likely to remain in the high tax bracket even after retirement. An advantage of these products is some also offer guaranteed payouts.

Tax-free bonds

As no new tax-free bonds are available, investors have to buy them from the secondary markets. The cut in tax-free bond yields is not as drastic as that of 10-year yield. However, tax-free bonds are favoured by ultra high networth investors and yields may fall further soon.

Other structured plans

Investors who want regular income can generate it by using other structured plans like systematic withdrawal plans (SWP) from mutual funds, etc. “Though annuities are fine, SWP is a better option because it is tax efficient. The chance of capital growth is higher,” says Ankur Maheshwari, CEO, Equirus Wealth Management. This capital appreciation is also needed to match the rise in expenses due to inflation and therefore, investors have to go with balanced funds or dynamic asset allocation funds instead of pure debt funds. Since only a portion of your corpus will be invested here, the risks will also not be much. Please send your feedback to [email protected]

insurance The Economic Times Wealth July 29-August 4, 2019

11

Know the benefits and risks of endowment plans A PIL was recently filed against LIC by investors in the Jeevan Saral plan. Here’s a look at how such endowment policies work.

T

he spotlight is back on endowment plans. Life Insurance Corporation of India’s (LIC) Jeevan Saral, withdrawn in 2014, was in the news recently after a PIL was filed in the Supreme Court , alleging that LIC had mis-sold the product by misleading policyholders. The apex court made it clear it was not expressing any opinion on the merits of the case.

A not-so-Saral affair

Launched in 2004, Jeevan Saral was sold as an easy-to-understand plan. The policyholder had to choose the premium, and the sum assured would be at least 250 times the monthly premium, besides loyalty additions. In this ‘simple’ structure lay the genesis of a controversy. “Irrespective of whether the policyholder was 25 or 50, the sum assured was the same—minimum 250 times the monthly premium. Mortality charges were levied accordingly. Many agents sold the product to older individuals, without considering whether the life cover was needed or not,” says Melvin Joseph, Founder, Finvin Financial Planners. Pure protection cover is meant to replace the breadwinner’s income in the event of her death. In India, however, life insurance has been sold as a savingscum-insurance product, despite the fact that most endowment policies yield low returns—4-6% per annum. Many policyholders end up shelling out mortality charges for a cover they do not need. Since mortality charges are linked to age, older policyholders have to shell out more. “In case of Jeevan Saral, returns for higher age groups were in the negative in many cases. The higher mortality charges ate into the final corpus. Some ended with a corpus much lower than total premiums paid,” adds Joseph. An ET Wealth analysis of nearly 50 Jeevan Saral-related complaints filed with insurance ombudsman offices between 2015 and 2017 shows that some complainants received merely 30-40% of total premiums paid till maturity. Complainants alleged that LIC reached out to them closer to maturity with the contention that the maturity sum assured figures were either omitted or erroneously interchanged with the death sum assured, and the actual maturity sum assured was different. This ‘revised’ sum assured, plus loyalty additions declared,

was much lower than premiums paid. LIC explained the discrepancy as a “typographical error”, as per complaint records on the website of Executive Council of Insurers. “The respondent (LIC) has all the support system like manpower, technology and actuarial expertise. It cannot take 11 years for detecting the error—at the time of maturity of the policy. The policy document is an evidence of contract and the respondent cannot be allowed the liberty to issue incorrect policy document on the pretext of some snag,” the order passed by Mumbai Ombudsman office on 26 July 2017 noted, directing the company to pay all premiums paid by the complainant so far, minus the maturity payout already paid, along with loyalty additions. A Maharashtra state commission announced a similar verdict in December 2018. However, some insurance ombudsman offices chose to buy LIC’s typographical error argument. Then there are cases where the maturity sum assured was not mentioned clearly and policyholders’ pleas to treat the death sum assured as maturity sum assured were dismissed. LIC did not respond to an email seeking comments.

No compounding, low returns HOW MUCH A 35-YEAR-OLD MALE POLICYHOLDER STANDS TO GAIN

ANNUAL PREMIUM `50,000

PREMIUM PAYING 10 years

SIMPLE ANNUAL BONUS*

3.80%

POLICY TENURE 15 years

MATURITY SUM ASSURED `5 lakh

ANNUAL BONUS `19,000

Sequels not likely

The saga is unlikely to be repeated, say experts. “In other products, premium is decided on the basis of age and sum assured chosen at the time of purchase. But in this policy, the same sum assured was offered for all age groups,” explains Joseph. Identical premium and sum assured as younger age groups meant higher mortality charges for older individuals, which affected the maturity corpus. The product is not available any more. All old endowment products were withdrawn after Irdai’s fresh guidelines on traditional, non-linked products came into force in 2013. The regulations brought in a host of changes, including cap on commissions, higher surrender values and customised benefit illustrations where projected maturity values for participating endowment plans take into account premiums paid, age, sum assured and projected rate of return of 4% and 8% per annum. Remember, even these are not assured returns but are used for illustrative purposes. The customised benefit illustrations can be used to calculate IRR, which will hint at the impact of charges, including mortality, on the maturity value, even though they are not disclosed separately.

EXPECTED MATURITY VALUE** `7.85 lakh

IRR

4.32%

**Sum assured plus annual accumulated bonuses paid over 15 years for a regular premium, participating endowment plan.

Awareness is the key

Do your own research and understand the product instead of relying on the agent’s explanation or insurers’ brand image. Endowment plans come primarily in two forms: participating and nonparticipating. The latter are simpler to understand as the maturity payouts are clearly defined. It’s the participating, also called with-profits, plans that can be difficult to comprehend. They are not market-linked, but the returns, in the form of annual, interim or terminal bonuses, are not guaranteed. Annual bonuses can be simple bonuses that do not compound, but some insurers could offer compounded reversionary bonuses. Though endowment plans are seen as risk-free products, the returns for participating policies depend on surpluses generated by the participating fund managed by the insurer, which are then distributed amongst policyholders. After completion of a certain number of years,

GETTYIMAGES

by Preeti Kulkarni

some plans could offer loyalty additions, expressed as a percentage addition to the base sum assured. The idea is to encourage the policyholder to stick. While the returns are likely to be stable, they are neither guaranteed nor attractive. Also, returns remain low because bonuses accrued do not compound over the tenure or rates are low.

Please send your feedback to [email protected]

mutual fund The Economic Times Wealth July 29-August 4, 2019

Patience must for value funds by Sanket Dhanorkar

rather than earnings growth. Experts say the strength of a value-driven fund lies more in its ability to outperform or protect the downside better during a market decline. Over many years, this superior downside protection allows the fund to deliver healthy return. But this requires that investors remain patient and stay invested for the duration when returns seem elusive. Indeed, the merits of value funds become more apparent when looking at longer term performance. Over the past 10 years, these funds have clocked 13.7% return even as multi-cap and large-cap funds have managed 12.8% and 11% respectively. The fiveyear and 10-year rolling returns for these funds also show healthy outperformance. In fact, returns from value funds can be outsized if given sufficient time. Over 10 years, several value funds have delivered alpha in excess of 5% over their chosen benchmark index. Funds like Aditya Birla Sun Life Pure Value, ICICI Prudential Value Discovery and L&T India Value have particularly impressed. However, this return from value funds would not have been visible at shorter intervals. So it would not be prudent to dismiss the potential of value funds based on recent sub-par return. Rajeev Thakkar, CIO, PPFAS Mutual Fund, says, “Various investing strategies tend to perform in cycles. Eventually, returns tend to revert to mean.” Experts say investors should not opt for value funds if they cannot digest extended bouts of underperformance. Investors should be willing to give value funds a longer rope than others. It can take a lot of time for the underlying value to unlock and translate into returns. When the swing towards value does happen, returns usually come in a burst. “The upswing in returns tends to be very sharp for value funds. Investors have to be patient,” says Udasi. These funds are not known for their consistency, but for offering superior risk-adjusted return over the long haul. In

O

ver the years, the benefits of value investing have been espoused by several market gurus and fund managers. Discussions around this investing philosophy dwell on the rewards that await patient value-conscious investors. However, in recent years, those dabbling in the value theme have been left largely frustrated. Multiple value funds have given poor returns over extended time periods. So is there any point in keeping the faith in value funds? For the past five years or so, the equity market has been powered largely by socalled growth stocks. Companies that exhibit higher earnings growth trajectory or ‘quality of earnings’ have been favoured by investors. They have not been deterred by the rich valuations of the high growth companies. Expensive names from this space have become more expensive. Meanwhile, value stocks have been left behind. Value investing refers to picking businesses whose share price is trading below the intrinsic value, or at a price that is not reflective of their true worth. The perceived value residing in these names is far from being realised. Not surprisingly, value funds have been off the boil in recent years. Over the past three years, multi-cap funds delivered 9% even as value funds clocked 7.8%. Sonam Udasi, Fund Manager, Tata Mutual Fund, says, “Value as a theme has not fared well globally in recent years. Given the heightened uncertainty, investors have chosen to remain with what is known and visible.” However, looking purely at this recent performance would be overlooking a critical facet of value investing. Investors should note that value funds can underperform significantly for extended periods of time. This is particularly true in market conditions like the present, when priceearnings (PE) multiples drive share prices

GETTYIMAGES

Investors should note that value funds can underperform significantly for extended periods of time.

today’s market environment, value funds offer a better risk-reward proposition. If the market corrects in the coming years, value funds would be in a position to cushion the downside better than others. “The early signs of value staging a comeback are

Value funds have given good returns over the long-term

ICICI Prudential Value Discovery

Aditya Birla Sun Life Pure Value

IDFC Sterling Value

Tata Equity PE

Invesco India Contra

Value funds average

Multi cap funds average

8.8 10.9

9.9

8.6 9.8 12.7

13.5

3-year returns 5-year returns 10-year returns

7.2 9.6

11.7 12.7 14.7

10.3 11.7 15.0

15.0 7.9 10.0

3.2 7.4

15.5

17.2

These funds may exhibit bouts of underperformance over the short-term

5.1 9.1

12

Large cap funds average

Data as on 22 July. Figures are percentage annualised returns. Source: Value Research.

already visible,” insists Udasi. “As growth falters, investors begin to question rich valuations and that is when value begins to assert itself,” he adds. This is evident in the pull-back in share prices of some of the high-growth names in recent weeks. Even if you are willing to put in the time, value funds are best utilised towards diversification; to complement existing funds in your portfolio. In a growth market like India, funds biased towards growth stocks will continue to deliver healthy returns. These funds should form the core of an investor’s mutual fund portfolio. When picking value funds, investors need to be selective as there are a lot of variations in approach. Stick to funds that maintain reasonable quality in portfolio and not compromise in the hunt for value. “Certain value funds are run differently, with low quality stocks finding space in the portfolio on account of low PE. But these can be value traps,” points out Thakker. Please send your feedback to [email protected]

real estate The Economic Times Wealth July 29-August 4, 2019

13

Model Tenancy Bill: How it benefits tenants and owners

The draft legislation proposes to set up a rent court for addressing issues related to tenancy and rent.

W

hether you are planning to let out your property or find a house on rent, there’s good news in store for you. The recently drafted Model Tenancy Bill, 2019 has proposed a few measures that can address some of the reasons for disputes between tenants and landlords. The prevailing laws are skewed, giving more power to one party over the other. For instance, there is no limit on the amount of security deposit a landlord can demand. For young earners, arranging an enormous deposit worth 10-12 months’ rent can be challenging. On the other hand, property owners have little control over tenants who do not vacate the property even after the agreement has expired. The bill aims to bring both the parties on an equal footing. “The draft seeks to protect interest of both tenants and owners,” says Mudassir Zaidi, Executive Director-North, Knight Frank India. Find out about the provisions of the draft legislation.

Regulator for disputes

The draft has proposed to set up a rent authority and rent tribunal that will specifically examine disputes related to tenancy, ranging from issues related to rent to bigger dispute of non-vacation

of premises. Currently, all such issues are taken up in small causes courts and civil courts. “The burden on the judiciary is so high that such cases take years to get resolved. Sometimes people don’t take up tenancy related matters with the court fearing the long legal battle. A specialised rent court will ensure speedy redressal of disputes,” says Sandeep Jhunjhunwala, Director, Nangia Advisors (Anderson Global). The aggrieved party can take the matter further up to the rent court and rent tribunal. “All orders of the rent authority can be appealed before the rent court and all orders of the rent court can be further appealed before the rent tribunal if the party is not satisfied by the order at any level,” says Mukesh Jain, Founder and Real Estate Specialist, Mukesh Jain & Associates.

Revision of rent

As per the draft bill, the landlord will have to send a notice to the tenant about the increase in rent three months’ prior to the revised rent coming into effect. “Unless otherwise agreed in the agreement, the landlord cannot unilaterally increase the rent. Three months’ notice will give the tenant ample time to look for another house if he doesn’t agree with the proposed hike,” says Ashoo Gupta, Partner, Shardul Amarchand Mangaldas. The tenant, on the other

hand, will have to send a notice to the landlord to terminate the tenancy, failing which he will be deemed to have accepted the proposed hike in rent. As for the rent amount, the rent authority will fix or revise the rent after the landlord or the tenant has filed an application with it. To ensure this happens, the draft also mandates the tenants and

Tenancy disputes take years to get resolved in civil courts. A separate regulator will expedite the redressal. landlords to get into a written tenancy agreement and jointly submit it to the authority within two months. The documents should have details about the rent amount, tenure of tenancy and details of rent revision, if any, which will be reviewed by the authority to fix the rent.

Vacation of house

Current rules around vacation of property favour the tenants. The landlord cannot ask the tenant to vacate the property mid-term without giving a valid reason. On the other hand, there are no penal provisions for those who default on paying the rent or overstay after the agreement has expired. To resolve this,

the draft has laid out that if the tenant does not pay the rent for over two months or some construction has to be done on the property, the landlord can ask the tenant to leave. The draft has also proposed a compensation of twice the monthly rent if the tenant overstays for up to two months. This penalty will increase to four times the rent if he overstays for more than two months. As for tenants, they will have the right to leave before the agreement ends in case the premises becomes uninhabitable due to disrepair and the landowner refuses to carry out the repairs.

Cap on security deposit

A high security deposit is a major pain point when searching for a house on rent. While it is a moderate 2-4 months’ rent in cities like Delhi and Pune, in Bengaluru and Mumbai the deposit can be as high as 12 months’ rent. The draft has capped the security deposit to two months’ rent for residential properties and one month for commercial. However, this limit could prove to be insufficient for landlords if major damage is caused to the property. “In such a case, the owner can recover costs by approaching the rent authority. But the owner will have to bear the inconvenience of going through a legal process,” says Jhunjhunwala. GETTYIMAGES

by Shipra Singh

learn & keep 14

The Economic Times Wealth July 29-August 4, 2019

HOMES GOING OUT OF REACH FOR BUYERS

Indians are spending more of their income to service home loan EMIs and taking larger loans compared to their incomes to buy a property, says a RBI report. Narendra Nathan and Preeti Kulkarni look at the key findings.

Mumbai remains the least affordable city but other metros are also not affordable for the average Indian The HPTI ratio is the average house price expressed as a multiple of a borrower's average monthly income.

74.4

58.6

58.5

56.1

56.5

56.5

66.6

MUMBAI

CHENNAI

DELHI

BENGALURU

HYDERABAD

KOLKATA

PUNE

55.9

63.4

70.4

58.6

56.2

54.3

61.5

JAIPUR

CHANDIGARH

AHMEDABAD

LUCKNOW

BHOPAL

BHUBANESWAR

ALL-INDIA

Buying a house in Mumbai, Ahmedabad or Pune require larger loans Loan-to-income ratio is an indicator of average home loan size vis-à-vis annual income.

As of March 2019, the average house price in India was equal to 61.5 times an average Indian's monthly income. A rise in the ratio means that houses have become less affordable in cities across India.

EMIs rising, but no threat of debt trap

4

The EMI to income ratio represents EMIs as a percentage of monthly income.

Some cities have become more unaffordable than the rest

All

All India

Hyderabad

Chandigarh

Ahmedabad

Mumbai

Mar 2015

56.1

47.9

52.2

59.5

64.1

Jun 2015

59.3

52.7

53.2

62.9

66.5

Sep 2015

56.4

47.2

48.9

56.5

64

Dec 2015

57.1

46.3

57.4

57.4

66.2

Mar 2016

61.3

51.7

64.7

64.4

70.1

Jun 2016

61.5

53.1

58.9

66.6

71

Sep 2016

60.5

51.6

62.4

66.7

69.9

Dec 2016

60.2

51.9

60.5

64.9

69.3

Mar 2017

60.6

53.6

61.7

64.7

70.1

Jun 2017

61.9

53.6

64

66.9

73.4

Sep 2017

62.4

54.9

63.3

67.1

75.4

Dec 2017

62.6

56.1

61.4

65.4

76.4

Mar 2018

62.7

57.8

63

67.6

76.8

Jun 2018

61.1

56.3

64.8

68.4

75.1

Sep 2018

61.8

57.7

64.7

69.2

62

59.2

63.5

69.7

76.9

Mar 2019

61.5

60.3

63.4

70.4

74.4

% Jump in 4 yrs

10%

26%

21%

18%

16%

The average house price in Mumbai, which was was 64 times the average monthly income in March 2015, shot up to 74.4 times in March 2019, indicating rise in unaffordability over the longterm. Rise in unaffordability has been the sharpest in Hyderabad (26%), followed by Chandigarh (21%) and Ahmedabad (18%).

42.8

MUMBAI

Ahmedabad

42.9

43.5

42.7

40.6

40.8

38.9

37.8

40.7

40.8 38.4

3.1

38.2

37

3.2

CHENNAI

3.1

DELHI

3.3

3.2

3.7

BENGALURU HYDERABAD KOLKATA

PUNE

43.5

43.3

41.9

40.3 39.1

JAIPUR

3.2

3.9

2.7

CHANDIGARH AHMEDABAD

3.2

LUCKNOW

2.8

3.4

BHOPAL BHUBANESWAR ALL-INDIA

A borrower in Mumbai has to take a loan that is four times his annual income. But the average loan of a borrower in Bhubaneshwar would be lower at 2.8 times his annual income as of March 2019. March 2015

March 2016

March 2017

March 2018

March 2019

Over four years, the share of EMIs in Indians' monthly income has risen marginally. However, it adheres to the thumb rule of EMIs not exceeding 40% of monthly income. This points to prudent assessment of borrowers' loan-repaying capacity by banks.

Loan-to-value ratio (LTV) is the size of loan as a percentage of property value.

68.1

Jun 2015

68.2

Dec 2015

Jun 2016

67.9

67.7

Mar 2015

69.2

66.4

69.7

Mar 2016

68.8

Jun 2017

Dec 2016

68.5

Sep 2016

68.7

Mar 2017

71.1

70.6

Jun 2018

Dec 2017

70.8

69.5

Mar 2018

The loan burden of Indians has risen 13% since 2015 Home buyers on average have to take a loan that is 3.4 times their annual income to afford a house. Quarter

Average home loan size has grown

75.5

Dec 2018

Pune

41.8

42.6

There has been a 10% jump in HPI ratio over past four years. Quarter

Mumbai

3.3

70.5

70.5

Dec 2018

Sep 2018

69.6

Mar 2019

Sep 2017

Mumbai

Chennai

Delhi

Hyderabad

Kolkata

Chandigarh

Ahmedabad

Bhopal

All-India

Mar 2015

3.40

2.90

2.80

2.70

2.70

2.30

3.20

2.70

3.00

Mar 2016

3.70

3.30

3.20

2.90

3.10

3.50

3.50

3.10

3.30

Mar 2017

3.60

3.40

3.10

3.00

3.10

3.00

3.50

3.00

3.30

Mar 2018

4.00

3.50

3.30

3.30

3.40

3.20

3.80

3.40

3.50

Mar 2019

4.00

3.30

3.20

3.30

3.20

3.20

3.90

3.20

3.40

% growth since 2015

18%

14%

14%

22%

19%

39%

22%

19%

13%

Sep2015

The biggest jumps are seen in Chandigarh, Hyderabad and Ahmedabad, where home prices have risen faster than the rise in incomes. Borrowers in these cities have to take bigger loans compared to their incomes.

While the average LTV has increased since March 2015, it has started shrinking since June 2018, pointing to banks becoming more conservative in sanctioning large loans. As of March 2019, banks financed 69.6% of property purchase price.

Note: Cities where the growth rate exceeds the national average (13%) are taken into account. Source: RBI's Residential Price Monitoring Survey, March 2019.

stocks The Economic Times Wealth July 29-August 4, 2019

Invest in companies with high profit margins Due to tight operating and overhead cost controls, these firms can better navigate periods of unexpected losses. by Sameer Bhardwaj

ments. It has reported robust numbers for the fourth quarter of 2018-19, registering 41.5% and 69.8% year-on-year (y-o-y) growth in its revenue and net profit, respectively. Analysts believe that NCC’s well-diversified order book provides clear revenue visibility. Also, the reduction in the company’s gross debt will help keep its balance sheet healthy. The stock is trading at an attractive valuation and the company has suggested that its debt will be cut further in 2019-20. According to Bloomberg analysts’ estimates, the company is expected to report a 60% jump in its adjusted EPS in the first quarter of 2019-20.

M

ore than 66% of the stocks in the BSE500 index have lost money in 2019. The BSE Sensex has tanked over 1,900 points since the Budget. Slowing economic growth, fading expectations of aggressive rate cuts by the US Federal Reserve, rising tensions in West Asia, and lack of adequate stimulus to revive consumption in the recent Budget has been fuelling the market volatility. With investment values eroding, one of the strategy for direct equity investors is to consider stocks that have strong earnings potential. This potential is measured by looking at the net profit margin, which is calculated by dividing the net profit by the sales revenue. Higher the net profit margin, the better is the financial health of a company as it implies larger profits relative to revenue. Rising net profit margins over a period of time demonstrate the ability of a company to control its operating and overhead costs, which can help navigate periods of unexpected losses. However, these margins differ across industries due to their varying cost structures. For example, companies in the foods and beverages industry tend to have high revenues but low margins because a lot of money is spent on advertising, marketing and sales. Therefore, the analysis of companies based on net profit margins should be made in the context of the sectors in which they operate. We identified companies whose net profit margins have been higher than the average industry margins consistently over the past five quarters—March 2018 to March 2019. Further, only companies whose margins more than doubled between March 2018 and March 2019 were considered. The 27 companies that passed our filters have delivered one-year average point-to-point return of 14.1% between 18 July 2018 and 18 July 2019. Comparatively, BSE500 and BSE

Jammu & Kashmir Bank

This private sector bank functions as a universal bank—commercial and investment bank—in Jammu and Kashmir and as a specialised bank—focused on financing select sectors—in the rest of the country. Analysts believe that rising margins, improved asset quality and normalisation of credit costs will improve the bank’s operational performance and boost its profitability. There is also an opportunity for the bank to expand its retail base without diluting margins. Its asset quality is likely to remain stable and the return ratios should gradually improve. According to Bloomberg analysts’ estimates, the lender is expected to report 28% y-o-y growth in adjusted EPS in the first quarter of 2019-20. GETTYIMAGES

16

Sensex delivered 1.8% and 6.9% returns during the same period. Out of these 27, we selected stocks covered by at least five Bloomberg analysts and whose one-year forward price appreciation potential is more than 10%. The shortlisted companies were then evaluated in terms of their expected adjusted earnings per share

(EPS) growth in the first quarter of 2019-20 as estimated by Bloomberg analysts. Let us look at four of these stocks whose recent research reports are available:

NCC

This infrastructure company is engaged in civil construction projects across seg-

This global pharma company manufactures branded and generic medicines. Besides India, it is present in South Africa, the US, and some emerging economies. Analysts are bullish on it because of its robust US business, which is likely to drive its profitability. Cipla’s domestic business is growing at a steady pace helped by strong double digit growth across chronic therapy segments. The ramp-up in its existing products and new product launches will also support the company’s growth.

Brigade Enterprises

Growing faster than their peers Net profit margins of these companies have consistently grown faster than those of their respective sectors. Estimates 2019-20

Analysts’ recommendations

Stock price (`)

1-yr target price (`)

Upside potential (%)

ROE (%)

PE

Buy

Hold

Sell

NCC

80

158

97.1

14.1

6.2

17

7

1

The Jammu & Kashmir Bank

38

73

89.9

8.6

3.6

7

2

0

Cipla

531

596

12.3

11.7

22.6

24

13

5

Brigade Enterprises

272

307

12.7

10.5

13.9

9

1

0

Company

Cipla

Current price as on 22 July 2019. Source: ACE Equity and Bloomberg.

This realty developer caters to residential, office, retail, hospitality, and education sectors. Analysts are bullish on the stock due to its robust track record, strong portfolio of operational rental assets, steady residential sales and diversified revenue profile across real estate, lease assets and hospitality. New launches and sharp recovery in pre-sales in the fourth quarter of 2018-19 will help the company gain market share. Please send your feedback to [email protected]

family finance The Economic Times Wealth July 29-August 4, 2019

Increase equity investment The couple will need to align their investments with goals and cover their risks with higher insurance. by Riju Mehta

P

rashanth and Sushma stay with their three-year-old child in Kallige, Karnataka. They are both engineers and get a combined monthly salary of `1 lakh. They have a house worth `60 lakh and are repaying a `2 lakh home loan with an EMI of `9,000. After considering household expenses, EMI, insurance and investment, they are left with a surplus of `43,924. This should be put to work immediately to achieve their goals, which include building an emergency corpus, setting up a business, buying a house, saving for their child’s education and retirement. The financial planning team from Fincart suggests that they build the emergency corpus of `1.86 lakh, which is equal to six months’ expenses, by allocating cash and starting an SIP of `5,328 for one year. This should be invested in a liquid or a short duration debt fund. Next, the couple wants to set up a business in four years, for which they want `18.9 lakh. To achieve this goal, they will have to start an SIP of `34,258 in a short duration fund. For their child’s higher education in 15 years, the couple wants to amass `41.7 lakh and can achieve the goal by starting an SIP of `8,777 in an equity fund. The couple also wants to buy a house worth `53.7 lakh in 10 years, by making a down payment of `21.4 lakh. For the remaining amount, they can take a loan and the EMI can be furnished from the surplus. For this goal, they can assign their recurring deposit, stocks and insurance value. Besides, they will have to start an SIP of `25,177 in a diversified equity fund. Due to lack of surplus, they can start only with `8,400 and raise the amount with the increase in income. For retirement in 25 years, the couple will need `2.1 crore, and can assign their EPF, PPF, NPS and pension plan. They also need to start an SIP of `3,910 in an equity fund. For life insurance, Prashanth has a term plan of `60 lakh and a traditional plan of `40,000. Fincart suggests he end the term plan and buy a new `1 crore plan, for `1,512 a month. He should continue with the traditional plan as a debt component of his portfolio. For health insurance, the couple has a `3 lakh family floater plan, and Prashanth has bought a `3 lakh plan each for his parents. He should end the family floater plan and buy a `5 lakh plan, besides a `20 lakh top-up plan. This will cost `1,360 a month in premium. He should also continue his parents’ plan.

Portfolio CURRENT VALUE (`)

ASSET

PRASHANTH & SUSHMA, 35 & 30 YEARS, SALARIED, KALLIGE

How to invest for goals GOAL

FUTURE COST (`) / TIME TO ACHIEVE

RESOURCES USED

INVESTMENT NEEDED (`/MONTH)

Emergency fund

1.86 lakh / 1 yr

Cash

5,328

Start business

18.9 lakh / 4 yrs

-

34,258

Down payment for house

21.4 lakh / 10 yrs

RD, stocks, insurance

8,400*

Child’s education

41.7 lakh / 15 yrs

-

8,777

2.1 crore / 25 yrs

EPF, PPF, NPS, pension plan

3,910**

Real estate

60 lakh

Cash

1.2 lakh

Retirement

EPF

4.5 lakh

Investible surplus needed

PPF

1.1 lakh

Debt

Recurring deposits

40,000

Insurance value

40,000

Atal Pension Yojana

23,000

* Investment of `25,177 is needed but due to lack of surplus they can start with `8,400 for now. **Continue investing `42 a month in the PPF till retirement. Annual return assumed to be 12% for equity, 8% for debt funds. Inflation assumed to be 6%.

Insurance portfolio

Equity NPS

65,000

Stocks

EXISTING COVER (`)

EXISTING MONTHLY PREMIUM (`)

SUGGESTIONS

SUGGESTED MONTHLY PREMIUM (`)

Term plan (1)

60 lakh

1,000

End the plan. Buy `1 crore term plan

1,512

Traditional plan (1)

40,000

36

Continue

36

Ulip

-

-

-

-

TOTAL

60.4 lakh

1,036

`1 crore

1,548

Employer’s

-

-

-

-

Own

3 lakh + 6 lakh (parents)

518 + 2,833

Discontinue own plan. Continue parents’ plan. Buy `5 lakh family floater + 20 lakh top-up

1,360 + 2,833

TOTAL

9 lakh

-

`31 lakh

4,193

Critical illness & accident disability

-

-

-

-

TOTAL

-

-

-

-

Insurance cost

-

4,387

-

5,741

INSURANCE

6,000

Total

68.59 lakh CURRENT VALUE (`)

LIABILITIES

Home loan

2 lakh

Total liability

2 lakh

Net worth

`66.59 lakh

EXISTING (`)

SUGGESTED (`)

1 lakh

1 lakh

17,000

17,000

Contribution to dependants

5,000

5,000

Home loan EMI

9,000

9,000

Insurance premium

4,387

5,741

Investment

20,689

60,715

Total outflow

56,076

97,456

Surplus

43,924

2,544

Outflow Household expenses

Life insurance

Health insurance

Cash flow Income

60,673

Financial plan by FINCART

Premiums are indicative and could vary for different insurers.

Write to us for expert advice

Looking for a professional to analyse your investment portfolio? Write to us at [email protected] with ‘Family Finances’ as the subject. Our experts will study your portfolio and offer objective advice on where and how much you need to invest to reach your goals.

17

financial planning The Economic Times Wealth July 29-August 4, 2019

Why debt is important

PAPER WORK :: Contribute to NPS

Pension accounts maintained under the National Pension System (NPS) allow regular contributions from subscribers. This creates a retirement corpus while providing tax benefits during the contributing tenure. There are several ways in which one can make contributions to NPS Tier I and Tier II accounts.

Fixed income investments stabilise the overall returns of the portfolio.

Minimum contribution During account opening, subscribers have to contribute `500 for Tier I (pension) account and `1,000 for Tier II (investment) account. Each fiscal, the subscriber has to contribute a minimum of `1,000 for Tier I and `250 for a Tier II account.

Modes of contribution The subscriber can contribute either using physical mode or online mode through eNPS.

Bharat is young and invests only in equities. He has no immediate need for funds, has age on his side and is financially secure. He has opted for SIPs in equity funds and all his savings are channeled into these funds. His salary is more than adequate for his needs and Bharat makes sure all his excess funds are immediately invested. Bharat has considered debt investments only from the returns angle and how much he is likely to earn from it. He intends to keep away from them, as they seem like a drag. Has Bharat constructed a good portfolio for himself?

GETTY IMAGES

18

W

hile returns is an important factor to consider while deciding on where to invest, Bharat must consider the benefits that debt can bring to his portfolio and financial situation. The returns from his equity investments can be volatile and be depressed for long periods of time. Having some debt investments will stabilise the earnings of the portfolio since it will bring in steady and regular returns. Bharat should realise that his Provident Fund contribution is a fixed income investment. Bharat must have an emergency fund that he can use in situations of loss of income or a sudden requirement for funds. His existing equity investments may not be suitable for this purpose since they

may be in a downturn when he needs the money, and redeeming at that stage will imply losses. The money earmarked for emergency should be held in a debt investment, preferably a short-term debt fund so that it earns steady market returns and at the same time can be easily accessed in case of need. Bharat can also use debt in his tactical portfolio to benefit from high returns. Some debt funds, such as gilt funds, generate high returns in situations like falling interest rates in the market. But these are short-term opportunities and Bharat should be careful to time his entry when he is likely to benefit and exit when the conditions are expected to turn negative. Bharat’s overall financial situation will only improve if he makes the right use of debt in his portfolio.

The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.

Form To use the physical mode, the subscriber must fill up a NPS contribution instruction slip. This can be obtained from the nearest POP-SP or the NPS website. Details such as subscriber’s PRAN, name, contribution and payment mode need to be provided.

Visit to POP–SP Duly filled up contribution slip must be submitted to any POP-SP. The subscriber can find the nearest POP-SP by clicking on https:// npscra.nsdl.co.in/pop-sp.php.

Using eNPS Subscribers can register on https://enps.nsdl.com. One needs to submit PRAN and date of birth for authentication. An OTP will be sent to the subscriber’s registered number. Contribution can be made using Net banking, debit and credit card.

Charges

smart things to know

1

The statement of cash flows shows inflows and outflows of cash for an enterprise over an accounting period.

2

Cash inflows represent generation of cash, and cash outflows represent cash usage or spending.

Cash flow statement

Total cash flows of a firm are the sum of cash flows arising from operations, investment and financing activities. Each tells us how much cash is moving in and out due to each activity, and how that pattern has changed over time.

3

4

It measures how well a company manages its cash position, how it generates cash to pay its debt obligations and fund its operating expenses.

Cash flow statements are prepared on a cash-basis, while other financial statements use accrualbased accounting.

5

At the time of opening the account, the charges applicable are `200. For all subsequent transactions, the charges are 0.25% of the contribution amount, subject to a minimum of `25 and a maximum of `25,000. In case contribution is made using eNPS, the charges would be 0.10% of the contribution amount, subject to a minimum of `10 and a maximum of `10,000.

financial planning The Economic Times Wealth July 29-August 4, 2019

Teach spouse to be self reliant

S UMA SHASHIK ANT IS CHAIRPER SON, CENTRE FOR INVES TMENT EDUC ATION AND LE ARNING

A financially independent spouse should be able to initiate a money decision on her own. Encourage your wife to plan, act and hold herself to account for the outcomes: ask her to review and draft the final version of that will.

mita is recently widowed. She is in her mid-sixties and has grown up children living abroad. They are willing to take care of her, but Smita wants to live in India, on her own. It is just that she has never managed money in her life and is unsure where to begin. Her problem is not money alone, but the fears and mindset issues that women of her generation have to deal with. Aging women of today have lived in typical silos and roles in a family, with very avoidable dependencies. The husband has no qualms in announcing that he can’t make anything but a cup of tea; and the wife says she does not deal with bank accounts or investments, almost proudly. This generation has missed the advantages of seamlessness when it comes to everyday living. In a world where the young behave very differently, and where working women find it tough to even accept that women like Smita can be so submissive and non-assertive, makes it even more difficult. Such women struggle to make modifications to their behaviours and get on with life after the spouse is gone. They are too old to change, and the world around has no patience for them. How can retired men today help their wives to pick up life skills that will be of use when they are gone? Let’s make a check list. Does your wife find it tough to initiate an activity that involves decision making with money on her own? We have seen how conversations about assets tend to lean on neighbours and friends for support. Or how the decision to act on writing a will, after a meet-

GETTY IMAGES

The elderly often find it difficult to manage finances on their own, says Uma Shashikant.

ing with the financial adviser, is left to the husband. Or how women seek justifications from social norms, rituals, traditions and such to initiate a large expense. A financially independent spouse should be able to initiate a money decision on her own. Encourage your wife to plan, act and hold herself to account for the outcomes: ask her to review and draft the final version of that will. Do you find that she makes simple everyday decisions about money with hesitation and trepidation? Your wife needs support and reassurance that you are confident about her abilities to make these decisions. If she returns from a shopping trip and faces a barrage of questions about the price she paid, or told that there were better bargains, or if she was pulled up for making wrong decisions, she would slowly lose the confidence to make money decisions. She would fail to expand the scope of her money decisions. Encourage her to make small decisions; do not be derisive or critical; allow small mistakes and enable building up of confidence. Does your wife refuse to take up responsibility for major areas of her own life, or lean on you instead of taking control? Do you find that she passes on decisions to you, even if it affects her life? Is there a kitchen that needs remodeling, but she fails to get involved as she worries about how much of a budget is reasonable? Does she cut back on family visits and expenses on her side of the family and becomes resentmentful about it? Create an environment of responsibility and accountability in the household, and offer authority for doing what needs to be done. If all major

decisions are centralised and not discussed, financial dependencies develop even as you remain unaware of them. Do you find your wife is unwilling to disagree with others? Or seeks validation and approval of her actions from the family? Or seeks martyrdom as a voluntary position to place others ahead of herself? Does she constantly strive to fulfill the expectations of others? Does she blame herself if things go wrong? She may be lacking the confidence to see herself as an independent decision making entity with personal boundaries that should be protected. She will need help to learn to assert her rights and speak for herself. Create the space for conversations about money where she is confident that she is being heard. Allow her to critique your decisions and offer another point of view. Do you find her shirking typical financial tasks like drawing money at the ATM, visiting the bank, verifying account statements, or logging into Netbanking? Involve her in these decisions as you make them. She will learn if you patiently hand hold with the objective of enabling her to skillfully navigate the operational aspects of managing money. Does she complain it is very boring? Offer to help with tasks in the kitchen and learn some skills like cooking a meal, in exchange for conversations about money and finance. Perhaps your giving up a boring task from your perspective might motivate her. Do you have all documents and records in place? Does she know where the assets are? Does she know who the financial advisers are and how the investments can be accessed? Does she know the paperwork associated with your passing away? If there is no handy list of assets, make it with her. Clean up where needed. Close unused accounts, complete nominations and ensure she is a joint holder. Involve her while doing this to increase familiarity with these matters. Does she know the basics of managing income, growth and liquidity? When she is alone and has the responsibility of using and passing on the assets you have accumulated, she will have to understand fundamental principles that govern how investment choices are made. She needs to know risk, return and liquidity, and how asset allocation affects all three elements. Smita has been struggling to ward off product sellers. She thinks that not doing anything might be better. Smita believes that she should draw from the bank the money she needs for her expenses, and let everything else be managed by her children. But they do not live here to take charge of her finances. She knows how to use the ATM card and think that is enough. Pause to consider the risk and deep dependency in that stance. Protect your wife from these risks while you still can.

Please send your feedback to [email protected]

19

SMART STATS ET WEALTH TOP 50 STOCKS

The Economic Times Wealth July 29-August 4, 2019

In This Section MUTUAL FUNDS - P21 LOANS AND DEPOSITS - P23

Every week we put about 3,000 stocks through four key filters and rate them on a mix of factors. The end result of this is the listing of the top 50 stocks based on the composite rating to help ease your fortune hunt. RANK

PRICE `

Current Previous Rank Rank

Stock Price

GROWTH%*

VA LUAT I O N R AT I O S

Revenue

Net Profit

PE

PB

Div Yield

RISK

PEG

Downside Risk

Bear Beta

R AT I N G No. of Consensus Analysts Rating

Apar Industries

1

1

528.5

19.72

54.80

14.80

1.68

1.79

0.27

0.98

0.57

11

4.91

Finolex Cables

2

2

385.9

25.24

53.44

14.26

2.12

1.05

0.27

1.22

0.59

11

4.64

National Aluminium Co.

3

3

45.0

10.57

58.23

4.99

0.80

12.09

0.09

1.60

0.45

12

3.83

JK Cement

4

4

976.2

19.18

61.14

26.59

2.80

1.03

0.43

1.01

0.67

22

4.50

Apollo Tyres

5

10

161.2

17.57

26.38

13.58

0.92

1.98

0.50

1.38

1.08

28

4.46

Somany Ceramics

6

8

380.7

16.68

118.82

30.27

2.63

0.72

0.25

1.71

0.70

21

4.76

VA Tech Wabag

7

5

306.8

32.54

43.96

18.91

1.58

1.32

0.41

1.77

1.60

17

4.06

1

Fast growing stocks Top 5 stocks with the highest expected revenue % growth over the previous year Sterlite Technologies VA Tech Wabag Capacit'e Infraprojects Aurobindo Pharma HG Infra Engineering

36 33

Star Cement

8

7

108.0

29.61

43.20

17.15

4.17

0.96

0.37

1.33

0.68

11

4.64

HG Infra Engineering

9

14

227.0

29.87

34.52

11.66

2.24

0.22

0.32

2.06

0.57

12

5.00

KEC International

10

6

316.5

21.49

28.14

16.86

3.37

0.87

0.60

1.39

0.69

30

4.67

Jagran Prakashan

11

12

94.0

8.55

29.64

10.18

1.49

3.23

0.35

1.19

0.64

14

4.21

Aurobindo Pharma

12

11

553.9

30.17

24.61

13.75

2.34

0.46

0.52

1.42

1.27

36

4.64

Capacit'e Infraprojects

13

15

248.0

30.22

38.11

17.63

2.00

0.40

0.42

1.34

1.24

12

4.83

Zensar Technologies

14

16

217.1

19.51

25.66

3.10

0.50

1.12

0.13

1.79

1.58

16

4.31

Ahluwalia Contracts India

15

13

300.0

23.63

40.44

17.14

2.74

0.10

0.42

1.42

1.05

16

4.75

Bharat Heavy Electricals

16

17

61.2

9.96

51.91

21.89

0.69

2.94

0.41

1.68

1.25

34

2.79

DB Corp

17

9

164.2

5.14

24.64

10.54

1.58

6.72

0.32

1.26

1.13

15

4.13

NCC

18

21

74.2

19.71

15.56

7.82

0.96

1.33

0.50

2.12

1.46

18

4.89

Zensar Technologies National Aluminium Co. Arvind

6.36

NCC

7.82

Redington India

8.49

Gujarat Gas

19

18

161.7

28.47

39.97

26.69

5.06

0.49

0.55

1.28

0.86

27

4.26

Allcargo Logistics

20

19

100.2

15.73

12.73

9.99

1.21

5.53

0.52

1.35

0.84

10

4.60

Emami

21

22

319.3

14.62

86.34

47.90

7.00

2.19

0.59

1.47

0.90

33

4.18

Redington India

22

20

107.7

14.28

16.11

8.49

1.08

2.97

0.55

1.90

0.49

10

4.70

Ashok Leyland

23

29

72.3

19.94

15.56

10.20

2.43

4.27

0.66

1.61

1.15

47

3.40

Motherson Sumi Systems

24

23

111.8

14.63

33.42

21.60

3.18

1.36

0.67

1.80

1.26

33

4.30

Engineers India

25

26

104.1

23.16

19.82

17.93

2.82

4.59

0.91

1.55

0.75

16

4.31

Power Grid Corp of India

26

24

212.8

10.02

9.80

8.84

1.88

4.11

0.80

0.97

0.61

29

4.45

Jubilant Life Sciences

27

30

449.3

11.55

28.00

12.24

1.46

0.68

0.42

1.63

1.47

13

4.77

Parag Milk Foods

28

27

259.8

20.96

26.60

18.09

2.64

0.29

0.69

1.25

0.68

17

4.59

Petronet LNG

29

42

232.3

7.56

19.49

15.67

3.42

4.26

0.80

1.16

0.82

39

4.31

Century Plyboards India

30

38

127.8

15.49

33.70

19.09

2.91

0.77

0.56

1.69

1.18

20

4.20

Jamna Auto Industries

31

31

42.2

12.84

24.28

12.30

3.32

2.16

0.49

1.43

1.06

11

4.55

Info Edge India

32

36

2,245.2

23.67

121.23

43.59

10.36

0.21

0.36

1.70

0.10

28

3.79

Cipla

33

33

536.7

17.17

29.89

28.35

2.89

0.58

0.92

1.03

0.56

42

3.88

NTPC

34

35

129.9

12.34

4.53

10.26

1.18

3.78

1.31

1.06

0.77

27

4.85

Alkem Laboratories

35

28

1,809.8

15.90

32.58

28.03

3.92

0.90

0.88

0.87

-0.19

16

4.56

Lupin

36

34

773.1

15.07

74.04

57.79

2.55

0.68

0.78

1.26

0.93

46

2.96

DLF

37

NR

176.4

0.87

58.41

24.05

1.17

1.58

0.44

2.05

1.43

17

3.71

Rallis India

38

25

157.6

15.37

24.59

19.74

2.38

1.57

0.79

1.17

0.33

19

3.74

Persistent Systems

39

43

562.0

10.05

15.84

12.89

1.91

1.96

0.73

1.54

0.61

36

3.67

Sterlite Technologies

40

44

149.5

36.16

15.19

10.51

3.49

2.34

0.77

2.01

1.01

12

4.42

UltraTech Cement

41

46

4,463.9

26.32

68.63

50.52

4.33

0.26

0.82

1.25

1.25

39

3.77

VRL Logistics

42

41

251.2

13.51

32.13

24.60

3.50

1.39

0.55

1.28

0.73

13

4.00

Ipca Laboratories

43

NR

944.7

17.20

37.14

26.86

3.83

0.11

0.72

1.15

0.69

26

4.39

Mphasis

44

47

921.7

17.88

13.67

16.81

3.33

2.95

1.04

1.27

1.19

32

4.28

Arvind

45

NR

58.5

11.87

11.41

6.36

0.55

4.12

0.59

1.88

0.54

13

4.08

NBCC India

46

NR

48.1

28.29

41.80

23.10

5.73

1.14

0.55

1.91

2.26

14

4.07

CCL Products India

47

49

244.8

22.42

22.26

20.93

3.86

0.71

0.94

1.00

0.31

11

4.73

HeidelbergCement India

48

50

196.8

10.82

32.14

20.13

3.79

1.76

0.62

1.46

1.35

14

4.43

Vedanta

49

NR

171.4

4.58

16.24

9.00

1.01

11.42

0.53

1.92

1.12

23

3.61

Minda Industries

50

37

292.1

20.09

42.55

26.40

4.43

0.34

0.72

1.73

1.48

17

4.65

*REVENUE AND NET PROFIT GROWTH IS BASED ON CONSENSUS ANALYSTS' EXPECTATIONS. NR: NOT IN THE RANKING. DATA AS ON 25 JULY 2019.

SOURCE: BLOOMBERG

2

3

30 30 30

Least expensive stocks Top 5 stocks with the lowest price-earnings ratio 3.10 4.99

Best PEGs Top 5 stocks with the least price-earnings to growth ratio Zensar Technologies 0.09

0.13

National Aluminium Co

4

Apar Industries

0.25

0.27

Somany Ceramics

0.27

Finolex Cables

Income generators Top 5 stocks with the highest dividend yield (%) National Aluminium Co. Vedanta DB Corp Allcargo Logistics Engineers India

5

12.09 11.42 6.72 5.53 4.59

Least risky Top 5 stocks with the lowest downside risk Power Grid Corp of India

0.87

0.97

Alkem Laboratories

CCL Products India

0.98 Apar Industries

1.00

1.01 JK Cement

SEE DOWNSIDE RISK AND BEAR BETA COLUMNS IN THE ADJACENT TABLE.

smart stats The Economic Times Wealth July 29-August 4, 2019

ETW FUNDS 100

LAGGARDS & LEADERS Taking a long-term view of fund returns, here is a list of 10 funds in each category—five leaders (worth investing) and five laggards (that may be a drag on your portfolio).

BEST FUNDS TO BUILD YOUR PORTFOLIO

LAGGARDS

ET Wealth collaborates with Value Research to identify the top-performing funds across categories. Equity funds and equity-oriented hybrid funds are ranked on 3-year returns while debt-oriented hybrid and income funds are ranked on 1-year returns. Value Research Fund Rating

Net Assets (` Cr) 3-Month

RETURNS (%) 6-Month

1-Year

3-Year

5-Year

EQUITY: LARGE-CAP 

6,302.95

0.1

6.78

0.53

12.76

10.74

2.08

Mirae Asset Large Cap Fund



13,617.57

-2.65

4.59

4.47

12.31

12.91

1.76

Reliance Large Cap Fund



13,076.21

-4.56

3.27

4.19

11.21

10.9

1.77

HDFC Top 100 Fund



17,911.82

-2.62

5.41

8.37

11.17

9.10

1.87

Canara Robeco Bluechip Equity Fund



210.66

-1.25

4.58

0.87

10.5

9.36

2.5



22,117.05

-2.64

3.77

1.75

9.71

9.83

1.83

ICICI Prudential Bluechip Fund Edelweiss Large Cap Fund



165.75

-3.19

3.1

-3.25

9.32

9.52

1.66

JM Core 11 Fund



50.67

-9.53

-0.4

-10.18

9.01

10.16

—

Motilal Oswal Focused 25 Fund



1,113.38

-2.79

3.98

-5.65

8.58

10.20

2.25

Aditya Birla Sun Life Frontline Equity Fund



21,663.66

-3.49

2.28

-1.03

7.50

9.14

1.78

SBI Bluechip Fund



22,679.43

-1.97

5.49

-0.04

7.20

10.63

1.7

4.59 Principal Nifty 100 Equal Weight Fund

5.04 Baroda Large Cap Fund

5.67

12.8% THE 3-YEAR RETURN OF AXIS BLUECHIP IS THE HIGHEST IN ITS CATEGORY.

Sundaram Large and Mid Cap Fund LIC MF Large & Mid Cap Fund

Taurus Largecap Equity Fund

6.52 DSP Top 100 Equity Fund

6.58 IDFC Large Cap Fund

4.42 4.73 Union Multi Cap Fund



7,750.82

-3.46

3.56

5.67

13.82

18.39

1.99



711.45

-5.05

0.26

-2.9

10.86

11.27

2.54

5.43 Taurus Starshare Fund



505.17

-3.8

0.54

-3.4

10.53

—

2.78



4,929.13

-6.33

0.42

-6.22

10.36

14.63

1.91

6.22

Invesco India Growth Opportunities Fund



1,539.16

-5.35

0.15

-4.09

10.2

10.91

2.17

IDFC Focused Equity Fund

Kotak Equity Opportunities Fund



2,577.47

-4.42

2.36

-0.76

8.88

11.46

2.15

Principal Emerging Bluechip Fund



2,213.46

-6.28

-1.83

-9.64

8.43

13.68

1.99



8,044.17

-2.09

5.82

-7.06

12.57

12.69

2.08



1,974.44

-3.06

4.92

-1.07

11.46

10.73

2.1



4,864.29

-1.56

8.01

4.58

11.21

12.72

2.1 2.47

Canara Robeco Emerging Equities Fund

Parag Parikh Long Term Equity Fund SBI Focused Equity Fund Tata Retirement Savings Fund



649.90

-3.42

2.93

-5.19

10.88

12.47

Kotak Standard Multicap Fund



25,844.74

-3.09

4.11

0.55

10.74

13.38

1.75

Edelweiss Multi Cap Fund



391.99

-3.57

1

-3.96

10.65

—

2.39

Quant Active Fund



6.97

-3.72

1.11

-1.7

9.79

11.4

2.48

SBI Magnum Multicap Fund



7,650.41

-1.82

4.91

1.09

9.57

12.82

1.82

Franklin India Focused Equity Fund



8,651.84

-2.3

6.61

7.06

9.46

12.88

1.84

HDFC Retirement Savings Fund Equity Plan



735.06

-3.65

1.23

-1.59

9.38

—

2.57



13,450.26

-4.11

0.93

-8.18

9.23

15.14

1.86

Aditya Birla Sun Life Equity Fund



11,222.83

-4.8

0.39

-1.56

9.19

10.5

1.93

ICICI Prudential Multicap Fund



4,002.38

-3.37

3.76

1.6

9.06

10.68

2.2

Axis Midcap Fund



2,655.82

-5.11

0.64

-2.92

10.15

11.4

2.23

L&T Midcap Fund



5,026.07

-7.97

-5.19

-11.35

8.28

13.1

2.01

DSP Midcap Fund



6,302.32

-5.19

0.3

-5.41

7.35

12.59

1.97

Motilal Oswal Multicap 35 Fund

THE 3-YEAR RETURN OF AXIS FOCUSED 25 FUND IS THE HIGHEST IN ITS CATEGORY.



4,500.54

-5.58

0.09

-5.18

6.87

13.87

2.02

HDFC Mid-Cap Opportunities Fund



22,599.42

-8.56

-2.77

-10.86

6.51

11.61

1.84

Franklin India Prima Fund



7,168.59

-5.49

-1.61

-5.6

6.37

12.4

1.87

Taurus Discovery Fund



50.44

-8.77

-5.56

-12.69

6.36

10.47

2.51



2,258.10

-4.86

0.26

-4.04

11.61

18.37

2.35

HDFC Small Cap Fund



8,427.17

-10.03

-6.07

-10.13

10.61

12.97

1.94

Axis Small Cap Fund

-0.25 SBI Magnum Midcap Fund

2.15 UTI Mid Cap Fund

3.35 Motilal Oswal Midcap 100 Exchange Traded Fund

-3.26 Quant Small Cap Fund

-1.17 Sundaram Small Cap Fund

-0.89



492.95

0.94

6.54

4.08

9.77

12.78

2.67

6,079.30

-9.18

-7.15

-14.23

9.75

13.12

2.01

Reliance Small Cap Fund



8,232.06

-9.34

-5.54

-11.69

9.15

13.42

2.02

0.29

Franklin India Smaller Companies Fund



7,368.89

-9.57

-5.04

-13.59

2.77

10.89

1.84

HSBC Small Cap Equity Fund

Union Small Cap Fund

1.16

EQUITY: VALUE-ORIENTED Kotak India EQ Contra Fund



865.22

-4.52

2.23

-1.81

11.27

10.07

2.61



4,027.01

-5.37

-0.26

-4.57

11.21

12.37

2.02

Tata Equity PE Fund



5,499.16

-4.82

0.49

-8.17

10.08

11.47

1.88

L&T India Value Fund



8,259.70

-4.12

1.29

-4.31

7.82

12.37

1.86



2,201.51

-2.12

5.04

5.19

15.42

—

2.19

Invesco India Contra Fund

EQUITY: TAX-SAVING Mirae Asset Tax Saver Fund JM Tax Gain Fund



32.43

-3.05

3.73

-3.75

10.64

10.78

—

Axis Long Term Equity Fund



19,717.72

-1.74

6.02

-3.36

10.33

12.73

1.81

Motilal Oswal Long Term Equity Fund



1,410.43

-4.16

0.95

-10.57

10.09

—

2.21

Tata India Tax Savings Fund

DSP Small Cap Fund

15.4% THE 3-YEAR RETURN OF MIRAE ASSET TAX SAVER FUND IS THE HIGHEST IN ITS CATEGORY.

2.59 JM Equity Hybrid Fund

5.87 LIC MF Equity Hybrid Fund



1,902.77

-2.07

5.32

3.13

9.98

13.03

2.12



942.11

-2.55

4.31

2.6

9.55

12.13

2.43

IDFC Tax Advantage Fund



2,059.85

-6.4

0.94

-5.7

9.35

10.71

2.04



5,646.03

-2.84

5.4

1.86

9.32

11.47

1.9

6.40



10.09

-3.26

1.45

-1.17

9.15

14.61

2.48

Baroda Hybrid Equity Fund



878.07

-4.59

0.31

-5.85

8.88

11.09

2.53



8,849.88

-8.44

-4.19

-8.58

7.96

11.55

2.03

Quant Tax Plan Invesco India Tax Plan Aditya Birla Sun Life Tax Relief 96

10.63 SBI Bluechip Fund

15.14 Motilal Oswal Multicap 35 Fund

13.38 Kotak Standard Multicap Fund

12.88 Franklin India Focused Equity Fund

12.82 SBI Magnum Multicap Fund

12.72 SBI Focused Equity Fund

10.15 Axis Midcap Fund L&T Midcap Fund

7.71 Reliance Growth Fund

7.35 DSP Midcap Fund

7.05 Tata Midcap Growth Fund

11.61 SBI Small Cap Fund

10.61 HDFC Small Cap Fund

9.77 Axis Small Cap Fund

9.75 L&T Emerging Businesses Fund

9.15 Reliance Small Cap Fund

Hybrid: Aggressive 5-year returns

Kotak Tax Saver DSP Tax Saver Fund

10.74 Axis Bluechip Fund

Equity: Small-cap 3-year returns



L&T Emerging Businesses Fund

10.90 Reliance Large Cap Fund

8.28

1.22 1.43

THE 3-YEAR RETURN OF AXIS MIDCAP FUND IS THE HIGHEST IN ITS CATEGORY.

12.91 Mirae Asset Large Cap Fund

Equity: Mid-cap 3-year returns

Motilal Oswal Midcap 30 Fund

EQUITY: SMALL-CAP SBI Small Cap Fund

HDFC Focused 30 Fund

DHFL Pramerica Midcap Opportunities Fund

10.2%

EQUITY: MID-CAP

Kotak Emerging Equity Scheme

6.50

12.6%

EQUITY: MULTI-CAP Axis Focused 25 Fund

13.19 Quant Focused Fund

Equity: Multi-cap 5-year returns LIC MF Multicap Fund

EQUITY: LARGE- & MID-CAP Mirae Asset Emerging Bluechip Fund

LEADERS

Equity: Large-cap 5-year returns

Expense Ratio (%)

Axis Bluechip Fund

21

5.96 DHFL Pramerica Hybrid Equity

7.01 Shriram Hybrid Equity Fund

12.40 Tata Retirement Savings Fund

11.09 SBI Equity Hybrid Fund

11.01 ICICI Prudential Equity & Debt Fund

10.70 HDFC Hybrid Equity Fund

10.47 Canara Robeco Equity Hybrid Fund

ANNUALISED RETURNS IN % AS ON 24 JULY 2019.

smart stats 22

The Economic Times Wealth July 29-August 4, 2019

ETW FUNDS 100

Value Research Fund Rating

Net Assets (` Cr) 3-Month

RETURNS (%) 6-Month

1-Year

3-Year

5-Year

1

Expense Ratio

8.4%

HYBRID: EQUITY SAVINGS HDFC Equity Savings Fund



5,422.35

-0.23

3.38

4.82

8.43

8.03

1.96

ICICI Prudential Equity Savings Fund



1,672.31

1.52

5.35

8.11

7.81

—

1.36

Kotak Equity Savings Fund



2,121.50

-0.53

2.67

3.23

7.28

—

2.14

Edelweiss Equity Savings Fund



124.01

-0.06

2.81

2.07

7

—

1.74

Mirae Asset Hybrid Equity Fund



2,195.81

-1.05

5.48

6.22

10.77

—

2.08

HDFC Retirement Savings Fund



303.29

-1.88

2.7

3.36

10.65

—

2.62

Principal Hybrid Equity Fund



1,687.75

-4.69

-0.68

-1.96

10.57

10.2

1.99

ICICI Prudential Equity & Debt Fund



25,616.79

-1.37

5.59

6.16

9.89

11.01

1.73

SBI Equity Hybrid Fund



29,831.59

0.45

6.2

5.93

9.53

11.09

1.65

Canara Robeco Equity Hybrid Fund



2,315.82

-1.66

3.55

2.31

9.41

10.47

2.09 2.14

HYBRID: AGGRESSIVE (EQUITY-ORIENTED)

HDFC Children's Gift Fund



2,840.10

-2.45

1.63

1.02

9.36

10.28



1,092.15

-4.52

0.99

-4.78

9.32

12.4

2.28



22,221.20

-1.39

3.95

3.16

9.18

10.7

1.77

ICICI Prudential Regular Savings Fund



1,640.31

1.51

4.39

7.33

8.63

9.89

1.96

Indiabulls Savings Income Fund

Tata Retirement Savings Fund HDFC Hybrid Equity Fund

HYBRID: CONSERVATIVE (DEBT-ORIENTED) 

20.28

1.48

3.43

6.4

9.19

—

2.22

Tata Retirement Savings Fund



131.82

0.9

3.97

3.97

7.18

8.69

2.24

Reliance Hybrid Bond Fund



1,782.80

-0.57

0.54

3.8

6.05

7.76

1.87 2.22

SBI Magnum Children's Benefit Fund



63.61

-3

0.21

1.5

9.11

10.71



2,150.69

0.47

3.15

0.71

5.97

9.25

1.84



2,465.63

-2.52

-0.14

0.09

5.85

7.86

1.78

Aditya Birla Sun Life Regular Savings Fund UTI Regular Savings Fund

THE 3-YEAR RETURN OF HDFC EQUITY SAVINGS FUND IS THE HIGHEST IN ITS CATEGORY.

Top 5 SIPs Top 5 equity schemes based on 10-year SIP returns Canara Robeco Emerging Equities Fund 18.04 SBI Focused Equity Fund 15.63 Principal Emerging Bluechip Fund 15.35 Franklin India Smaller Companies Fund 15.27 DSP Small Cap Fund 15.18

7.3% THE 1-YEAR RETURN OF ICICI PRU REGULAR SAVINGS FUND IS THE HIGHEST IN ITS CATEGORY.

SIP: SYSTEMATIC INVESTMENT PLAN

2

% ANNUALISED RETURNS AS ON 24 JULY 2019

Top 5 MIPs Top 5 MIP schemes based on 3-year SWP returns Indiabulls Savings Income Fund 9.04 ICICI Prudential Regular Savings Fund

DEBT: MEDIUM- TO LONG-TERM SBI Magnum Income Fund



1,181.83

4.89

6.83

10.12

7.87

8.67

8.35

1.47

Baroda Conservative Hybrid Fund

DEBT: MEDIUM-TERM SBI Magnum Medium Duration Fund



1,692.54

4.01

6.3

10

8.96

9.37

1.09

Franklin India Income Opportunities Fund



3,670.24

2.32

2.96

7.9

8.39

8.71

1.7

Axis Strategic Bond Fund



1,183.24

0.74

2.75

6.91

7.54

8.67

1.05

UTI Medium Term Fund



319.30

1.47

2.9

6.12

6.95

—

1.57



2,556.66

2.89

5.15

9.27

7.43

8.07

0.9

HDFC Short Term Debt Fund



7,991.50

2.83

4.97

9.19

7.69

8.33

0.4

Indiabulls Short Term Fund



108.03

2.74

4.71

9.12

7.53

8.2

1.48 1.29

DEBT: SHORT-TERM Axis Short Term Fund

Baroda Short Term Bond Fund



288.83

3.03

4.9

8.97

8.13

8.52

Franklin India Short Term Income Plan



13,235.76

1.68

3.05

8.67

8.64

8.82

1.49



135.42

0.65

2.37

6.28

6.52

7.49

1.18

BNP Paribas Short Term Fund

7.32 BNP Paribas Conservative Hybrid Fund 6.17

9.3% THE 1-YEAR RETURN OF AXIS SHORT TERM FUND IS THE HIGHEST IN ITS CATEGORY.

DEBT: DYNAMIC BOND SBI Dynamic Bond Fund



991.53

7.22

9.97

13.93

8.59

9.38

1.65



680.04

5.18

7.68

13.32

9

9.38

1.08

DHFL Pramerica Dynamic Bond Fund



40.52

5.49

7.86

12.95

8.73

9.58

1.25

ICICI Prudential All Seasons Bond Fund



2,750.14

4.15

6.24

10.19

8.4

9.87

1.3



3,923.13

1.91

3.55

9.12

8.68

9.39

1.68

0.46

Kotak Dynamic Bond Fund

Franklin India Dynamic Accrual Fund

DHFL Pramerica Hybrid Debt Fund 6.17 SWP: SYSTEMATIC WITHDRAWAL PLAN

3

% ANNUALISED RETURNS AS ON 24 JULY 2019

Mid-cap

cash holdings 16.43 13.89 9.13

8.79

8.60

BNP Paribas Midcap Fund

IDBI Midcap Fund

L&T Midcap Fund

DEBT: CORPORATE BOND HDFC Corporate Bond Fund Franklin India Corporate Debt Fund



12,257.68

3.81

6.27

10.76

8.15

8.8



903.87

3.47

5.14

10.3

8.69

8.98

0.9



15,662.09

3.18

5.46

10.18

8.04

8.73

0.39



2,148.87

2.69

4.9

9.23

8.07

9.16

0.59



1,172.59

1.53

3.65

7.78

7.27

7.96

0.71

Aditya Birla Sun Life Corporate Bond Fund Kotak Corporate Bond Fund Reliance Prime Debt Fund

All equity funds ranked on 3-year returns. Debt funds ranked on 1-year returns.

Exp. ratios as on 30 June 2019 Returns as on 24 July 2019 Assets as on 30 June 2019 Ratings as on 30 June 2019

ICICI Axis Prudential Midcap Midcap Fund Fund

Did not find your fund here?

% AS ON 30 JUN 2019

Log on to www.wealth.economictimes.com for an exhaustive list.

Methodology

EQUITIES (figures over the past one year)

The Top 100 includes only those funds that have a 5- or 4-star rating from Value Research. The rating is determined by subtracting a fund’s risk score from its return score. The result is assigned stars according to the following distribution:

Large-cap: Mostly invested in large-cap companies.

  Top 10%

Small-cap: Mostly invested in small-cap companies.



 Next 22.5%



 Middle 35%

 

 Next 22.5%

(Not covered in ETW Funds 100 listing)

 Bottom 10%

Fixed-income funds less than 18 months old and equity funds less than three years old have been excluded. This ensures that all the funds have existed long enough to be tracked for consistency of performance. Given the focus on long-term investing, liquid funds, short-term funds and FMPs are not part of the list. For the same reason, we have considered only the growth option of funds that reinvest returns instead of offering dividends that increase the NAV of funds. Despite these rigorous filters, the list includes 2/3 funds of each category to maximise choice from the best funds. The fund categories are:

Multi-cap: Mostly invested in large- and mid-cap companies. Mid-cap: Mostly invested in mid-cap companies. Tax planning: Offer tax rebate under Section 80C. International: More than 65% of assets invested abroad. Income: Average maturity varies according to objective. Gilt: Medium- and long-term; invest in gilt securities. Equity-oriented: Average equity exposure more than 60%. Debt-oriented aggressive: Average equity exposure between 25-60%. Debt-oriented conservative: Average equity exposure less than 25%. Arbitrage: Seek arbitrage opportunities between equity and derivatives. Asset allocation: Invest fully in equity or debt as per market conditions.

FUND RAISER

`3,494 crore is the exposure of mutual funds to the Yes Bank bonds that were downgraded last week by ICRA. At `2,216 crore, Reliance Mutual Fund has the highest exposure to the downgraded papers.

4

Debt: Corporate Bond lowest expense ratios 0.46

0.48

0.51

0.51

0.39

Aditya Birla Sun Life Corporate Bond Fund

HDFC Corporate Bond Fund

Sundaram UTI CorDSP Corporate Corporate porate Bond Fund Bond Bond Fund Fund

% AS ON 30 JUN 2019 % EXPENSE RATIO IS CHARGED ANNUALLY. METHODOLOGY OF TOP 100 FUNDS ON WWW.WEALTH.ECONOMICTIMES.COM

loans and deposits The Economic Times Wealth July 29-August 4, 2019

23

LOANS & DEPOSITS

ET WEALTH collaborates with ETIG to provide a comprehensive ready reckoner of loans and fixed-income instruments. Don’t miss the information on investments for senior citizens and a simplified EMI calculator.

Top five bank FDs TENURE: 1 YEAR RBL Bank

Interest rate (%) compounded qtrly

What `10,000 will grow to

7.90

10,814

Lakshmi Vilas Bank

7.75

10,798

IndusInd Bank

7.60

10,782

South Indian Bank

7.40

10,761

Bandhan Bank

7.35

10,756

TENURE: 2 YEARS

BANK MCLR

Top banks for 2 years BANK NAME

Marginal Cost of funds-based Lending Rate (MCLR) is the new benchmark lending rate designated by RBI and will replace the base rate for new borrowers.

IDFC First Bank

8.50

11,832

RBL Bank

8.00

11,717

AU Small Finance Bank

7.87

11,687

Lakshmi Vilas Bank

7.85

11,682

IndusInd Bank

7.75

11,659

DCB Bank

8.25

12,776

AU Small Finance Bank

8.10

12,720

Lakshmi Vilas Bank

7.85

12,627

State Bank Of India

8.25

10 JULY 2019

Bandhan Bank

7.65

12,552

Punjab National Bank

RBL Bank

7.60

12,534

8.30

Allahabad Bank

Lakshmi Vilas Bank

7.85

14,751

AU Small Finance Bank

7.77

14,693

DCB Bank

7.75

14,678

Bandhan Bank

7.65

14,607

RBL Bank

7.60

14,571

TENURE: 3 YEARS

TENURE: 5 YEARS

Top five senior citizen bank FDs

Top banks for 6 months BANK NAME

MCLR (%)

WITH EFFECT FROM

State Bank Of India

8.50

10 July 2019

Union Bank Of India

8.65

1 July 2019

Indian Overseas Bank

8.75

10 JULY 2019

Axis Bank

8.80

2 July 2019

HDFC Bank

8.80

8 July 2019

Top banks for 3 years

WITH EFFECT FROM

BANK NAME

MCLR (%)

WITH EFFECT FROM

Punjab National Bank

8.60

1 July 2019

1 JULY 2019

State Bank Of India

8.60

10 July 2019

8.40

14 June 2019

Union Bank Of India

8.70

1 July 2019

Central Bank Of India

8.40

1 July 2019

Axis Bank

8.85

2 July 2019

Union Bank Of India

8.45

1 JULY 2019

Indian Overseas Bank

8.85

10 July 2019

Top banks for 1 year BANK NAME

MCLR (%)

Top banks for 5 years

WITH EFFECT FROM

Punjab National Bank

8.40

1 July 2019

State Bank Of India

8.40

10 July 2019

Central Bank Of India

8.50

1 July 2019

BANK NAME

Interest rate (%) compounded qtrly

What `10,000 will grow to

8.40

10,867

Lakshmi Vilas Bank

8.35

10,862

IndusInd Bank

8.10

10,835

Allahabad Bank

8.55

14 June 2019

Bandhan Bank

8.10

10,835

South Indian Bank

7.90

10,814

Union Bank Of India

8.55

1 July 2019

IDFC First Bank

9.00

11,948

RBL Bank

8.50

11,832

Lakshmi Vilas Bank

8.45

11,820

Your EMI for a loan of `1 lakh

Bandhan Bank

8.40

11,809

TENURE

AU Small Finance Bank

8.37

11,802

DCB Bank

8.75

12,965

AU Small Finance Bank

8.60

Lakshmi Vilas Bank

8.45

Bandhan Bank

8.40

12,832

RBL Bank

8.10

12,720

Lakshmi Vilas Bank

8.45

15,191

Bandhan Bank

8.40

15,154

AU Small Finance Bank

8.27

15,057

Senior Citizens' Savings Scheme

8.6

1,000

DCB Bank

8.25

15,043

RBL Bank

8.10

Sukanya Samriddhi Yojana

8.4

14,932 Public Provident Fund 5-year NSC VIII Issue

TENURE: 1 YEAR RBL Bank

MCLR (%)

MCLR (%)

WITH EFFECT FROM

Karur Vysya Bank

9.55

7 July 2019

City Union Bank

9.95

6 August 2018

* STRATEGIC PREMIUM OF 0.25%. # BUSINESS STRATEGY SPREAD OF 0.30%. FOR ANY CHANGES IN MCLR RATES, PLEASE E-MAIL US AT [email protected]

TENURE: 2 YEARS

5 YEARS

10 YEARS

15 YEARS

20 YEARS

25 YEARS

@ 8%

2,028

1,213

956

836

772

@ 10%

2,125

1,322

1,075

965

909

12,908

@ 12%

2,224

1,435

1,200

1,101

1,053

12,851

@ 15%

2,379

1,613

1,400

1,317

1,281

TENURE: 3 YEARS

TENURE: 5 YEARS

Top five tax-saving bank FDs Interest rate (%)

What `10,000 will grow to

7.85

14,751

AU Small Finance Bank

7.77

14,693

DCB Bank

7.75

14,678

IDFC First Bank

7.75

14,678

Bandhan Bank

7.65

14,607

TENURE: 5 YEARS AND ABOVE Lakshmi Vilas Bank

ALL DATA SOURCED FROM ECONOMIC TIMES INTELLIGENCE GROUP ([email protected])

FIGURES ARE IN `. USE THIS CALCULATOR TO CHECK YOUR LOAN AFFORDABILITY. FOR EXAMPLE, A `5 LAKH LOAN AT 12% FOR 10 YEARS WILL TRANSLATE INTO AN EMI OF `1,435 X 5 = `7,175

Post office deposits

Interest (%)

Minimum invt. (`)

Maximum investment (`)

Tax benefits

Features

15 lakh

5-year tenure, minimum age 60

80C

250

1.5 lakh per year

One account per girl child

80C

7.9

500

1.5 lakh per year

15-year tenure, tax-free returns

80C

7.9

100

No limit

No TDS

80C

6.9-7.7

200

No limit

Available in 1, 2, 3, 5 years

80C#

Post Office Monthly Income Scheme

7.6

1,500

Single 4.5 lakh

5-year tenure, monthly returns

Nil

Joint 9 lakh

5-year tenure, monthly returns

Nil

Kisan Vikas Patra

7.6

1,000

No limit

Can be encashed after 2.5 years

Nil

Recurring deposits

7.2

10

No limit

5-year tenure

Nil

Savings account

4.0

20

No limit

`10,000 interest tax free

Nil

Time deposit

Data as on 25 July 2019

# Benefit available only for 5-year deposit

financial planning The Economic Times Wealth July 29-August 4, 2019

Invest in less volatile products

Instruments that give stable returns fare better over the long-term compared to products with high volatility.

by Avneet Kaur

GETTYIMAGES

I

nvestors often fail to follow legendary investor Warren Buffet’s two famed rules for successful investing. Rule 1: Never lose money, and Rule 2: Don’t forget Rule 1. Simple behavioural changes, however, can help investors implement and benefit from these rules, according to Neil Parag Parikh, CEO, PPFAS Mutual Fund. “Preservation of capital, earning a reasonable rate of return and investing in a disciplined manner can help you avoid large negative returns in your portfolio,” said Parikh at the at the 14th edition of the ET Wealth Investment Workshop held in Surat on 12 July. But what is a reasonable rate of return? Can one go by simple average return of a product? Parikh highlighted how focusing on average historical returns from a product can often lead investors to make the wrong choices. He presented two sets of returns (see table), both showing annual returns of two products for four years. The first product delivered large double-digit returns for three years—40%, 50%, 65%—and a large negative return—-60—in one year. The other product offered modest doubledigit returns in all the four years—20%, 15%, 17%, 20%. The simple average

Average returns can be misleading

Even though the average return from Option A is higher, investment in Option B has grown more.

YEARLY RETURNS

GROWTH OF `100

OPTION A

OPTION B

OPTION A

OPTION B

40%

20%

140

120

Year 2

50%

15%

210

138

Year 3

-60%

17%

84

161.46

Year 4

65%

20 %

138.6

193.75

Average return

23.75%

18%

Year 1

return of the first and the second products comes to 23.75% and 18%, respectively. When Parikh asked which product would the workshop participants invest in,

most chose the product with 23.75% average return. They were all in for a surprise when Parikh then showed how an investment of `100 in the two products would

have grown in four years. The `100 invested in the first product would have become `139 at the end of four years, while the same amount invested in the second product would have almost doubled to `194. “The second option might seem boring, but it has given decent, stable returns compared to the first option. It is not losing money,” said Parikh. The first option’s compound average growth rate (CAGR) is a little about 9%, whereas the second product’s CAGR is double at 18%. “The point is to make sure there is no large negative return in your portfolio,” said Parikh. How badly can a single large negative return hit your portfolio? “Suppose a stock worth `100 falls by 25% to `75. This stock will have to rise 33% to recover its original price,” explained Parikh. Similarly, if a `100 stock falls by 50%, it has to go up by 100% to reach its original value. “So, the more a stock falls, the tougher it will be for it to get back to its original price. A fall of 5%, 10% or 15% is normal, but if your investment falls 3040%, it will be really hard to recover to your principal,” warned Parikh. Please send your feedback to [email protected]

Make sure your investment beats inflation Besides inflation, one must also take into account the tax outgo for efficient financial planning. by Avneet Kaur

P

eople can take care of their financial well-being, if they keep a few important things in mind. For instance, investing in products likely to beat inflation is critical, said Kartik Iyer, Founder and Managing Partner, Investmart, a Vadodara-based wealth management firm. He was speaking at the 14th edition of the ET Wealth Investment Workshop held in Surat on 12 July. The first step to financial planning is protection via insurance. Having life and health insurance is a must for one’s financial well-being, and it must not be treated as an ‘investment’, or just a tax-saving instrument, Iyer cautioned. A term life cover of at least 10-times one’s annual income is desirable. Similarly, adequate health insurance is also needed, given the rising medical inflation. It is also imperative to have a contingency fund that can help manage financial exigencies—job loss, out-of-pocket medical expenses, etc. “You can park your emergency fund in a savings bank account, a bank fixed deposit or liq-

GETTYIMAGES

24

uid mutual funds,” said Iyer. After taking life and health insurance, you need to define your financial goals and carefully choose suitable investment products. Invest in products based on your risk profile and time you have to reach a goal, advised Iyer. He also told investors to understand the product features thoroughly before investing.

“Your savings should be invested in such a way that they grow enough to beat inflation,” advised Iyer. Touching on the theme of the real rate of return, Iyer said that equities can help beat inflation but one needs to stay invested in them for longer tenures. “You need to give equities time to produce returns. If you keep on churning your portfolio fearing short-term volatility, you will

not get the same kind of returns.” Besides inflation, one must also take into account taxes for proper financial planning. “While you do not have much control over taxes, you can always choose tax-efficient investment products,” he said. Iyer told the participants not to focus only on the inflation announced by the government and include lifestyle inflation. “Lifestyle inflation is when you switch from ordinary shoes worth `500 to buy branded shoes worth `3,000, a 500% lifestyle inflation,” explained Iyer. Tracking one’s investments is as important as important as choosing the right products. Iyer advised that the participants review their portfolio at least once a year. He also touched on succession planning: “An investor must prepare a will, cross-check the holding pattern and nominations in investments and verify bank details and addresses for smooth transmission of assets.” Please send your feedback to [email protected]

pick of the week The Economic Times Wealth July 29-August 4, 2019

25

Jubilant Life: Long-term growth story The sharp correction in the stock price offers long-term investors a good buying opportunity.

W

Isotopes, and this should help improve Jubilant Life’s operarning letters from the US Food and Drug ating leverage and segment margins. The company is also a Administration (FDA) to Indian pharmaleading contract manufacturer of sterile injectables. ceuticals companies have led to sharp price Jubilant Life has benefitted from the industry-wide shift corrections in these companies’ stock pricfrom generic to speciality pharma segments. Since Jubilant es. For instance, the stock price of Jubilant Life’s pharmaceuticals segment has limited competition, it Life Sciences has fallen 49% since it received the US FDA’s generates decent profit margins, which explains the compawarning letter concerning its formulations plant in Roorkee, ny’s better growth rates. The compound annual growth rate Uttarakhand, and official action indicated (OAI) letter of Jubilant Life’s revenue and net concerning its active pharmaprofit was 16% and 31% respectively, ceutical ingredient (API) plant in between 2015-16 and 2018-19. Though Nanjangudm, Karnataka. growth rates may moderate now due However, analysts feel that these to the company’s higher base, the concerns are overdone because 1 12 speciality pharma structural story these letters are due to procedural Sell Buy is expected to continue for the next lapses and, therefore, the chance of 3-5 years. Operational leverage of escalation—import ban from these its contract manufacturing segment plants—is low. Though some price should also improve after the modicorrection is warranted due to the fication in its plants that will allow US FDA letters because this may them to be operational throughout delay launch of the company’s new the day. Plant upgrades are expected products from these plants by 9-12 to be completed in 2019-20. months, the magnitude of the cut is unwarranted and therefore, offers Selection Methodology: We pick a good opportunity for long-term up the stock that has shown maxiinvestors. Sharp stock price correction, strong growth rates, focus on the growing speciality pharma segment, a bouquet mum increase in “consensus anaMore importantly, the long term of niche products, among other things, have made lyst rating” during the last 1 month. growth story of this integrated Jubilant Life analysts’ pick of the week. Consensus rating is arrived at by pharmaceuticals and life science averaging all analyst recommendaingredients (LSI) company is still tions after attributing weights to each of them (ie 5 for strong intact. Though a mid-cap player, Jubilant Life boasts of niche buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and products in segments like radiopharmaceuticals, allergy any improvement in consensus analyst rating indicates that therapy, among others. With 14 products in the market, the the analysts are getting more bullish on the stock. To make company commands around 10% of the radiopharmaceutisure that we pick only companies with decent analyst covercals market share in the US. The growth in this segment will age, this search will be restricted to stocks with at least 10 remain intact because several products are under phase-2 analysts covering it. You can see similar consensus analyst of clinical trials and may be launched in due course. To augrating changes during the last one week in ETW 50 table. ment its forward integration, Jubilant Life acquired a loss—Narendra Nathan making radio pharmaceuticals distribution company, Triad

Analysts’ views

Fundamentals CONSENSUS ESTIMATE

ACTUAL 2017-18

2018-19

2019-20

2020-21

Revenue (` cr)

7,517.84

9,110.82

9,762.31

10,633.17

Ebitda (` cr)

1,522.49

1,739.01

1,967.76

2,154.58

642.81

574.46

931.84

1,115.53

41.25

36.07

58.36

70.03

Net profit (` cr) EPS (`)

Valuations

DIVIDEND YIELD (%)

PBV

PE

Jubilant Life Sciences

3.16

12.39

0.67

Pfizer

5.41

33.81

0.63

Sanofi India

6.44

36.53

1.35

Abbott India

10.80

40.58

0.64

9.47

45.08

1.67

Glaxosmithkline Pharmaceuticals

Latest brokerage calls RECO DATE

RESEARCH HOUSE

22 Jul ’19

Nomura

15 Jul ’19

Macquarie

9 Jul ’19

ADVICE

Buy

TARGET PRICE (`)

660

Outperform

810

Motilal Oswal Sec.

Buy

640

8 Jul ’19

ICICI Securities

Buy

775

8 Jul ’19

Nirmal Bang Inst. Eq.

Buy

596

Relative performance MARKET PRICE: `446.85 1 100

25 JUL 2018

JUBILANT LIFE

90.51

SENSEX 102.64

57.81 ET PHARMA 25 JUL 2019

JUBILANT LIFE COMPARED WITH ET PHARMA AND SENSEX. STOCK PRICE AND INDEX VALUES NORMALISED TO A BASE OF 100. SOURCE: ETIG AND BLOOMBERG.

WHAT EXPERTS ADVISE BUY

*STOCK PRICES AS ON 25 JULY RESEARCH HOUSE

ADVICE

Shriram Transport Fin.

HDFC securities

Buy

Bank of Baroda

Jefferies India

Coromandel International Larsen & Toubro

STOCK

SELL STOCK

Just Dial TVS Motor V-Guard Industries

STOCK PRICE* (`)

1-YEAR TARGET PRICE (`)

POTENTIAL UPSIDE (%)

986

1,375

39

Strong up-country presence and focus on the niche used commercial vehicles market gives Shriram Transport Finance an edge over other asset financiers.

Buy

110

150

37

Bank of Baroda reported decent pre-provision operating profit. While asset quality and costs have disappointed, net interest margin and net interest income have beaten expectations.

Elara Cap

Buy

384

511

33

It has seen strong growth in earnings before income and tax in a challenging climate. Margin should improve further due to easing prices of key raw materials such as ammonia and sulphuric acid.

JP Morgan

Overweight

1,373

1,730

26

Consolidated earnings per share CAGR of around 17% is expected between 2018-19 and 2020-21 and this may improve further, if domestic private capex cycle recovers.

RESEARCH HOUSE

ADVICE

STOCK PRICE* (`)

1-YEAR TARGET PRICE (`)

POTENTIAL DOWNSIDE (%)

JM Financial

Sell

726

620

-15

Downgrade to 'sell'. The stress on its business is evident. No significant near-to-medium term positive triggers for the stock are also expected.

IDBI Cap

Sell

364

310

-15

Downgrade to 'sell'. Valuations are high. Near-term outlook for 4-6 weeks remains negative due to delayed monsoon, uneven spread, weak consumer sentiment and tight liquidity conditions.

Edelweiss Finance

Reduce

240

155

-35

Maintain 'reduce'. Valuations are high. While the management plans to ramp up its business beyond South, the road ahead would be challenging, given the presence of established, larger players.

COMMENT

COMMENT

your queries 26

The Economic Times Wealth July 29-August 4, 2019

I am planning to sell a commercial property. Can I purchase a residential apartment to save capital gains tax?

Yes, according to Section 54F of the Income-Tax Act, you can save capital gains tax on the sale of a commercial property by purchasing a residential property within a year before or within two years after the date of sale of the property. Please note that the new house must not be sold before three years from its purchase, else you will lose your tax benefits.

QA &

Our panel of experts will answer questions related to any aspect of personal finance. If you have a query, mail it to us right away.

QUESTION OF THE WEEK Amit Maheshwari,

Partner, Ashok Maheshwary and Associates

I have been investing in the following funds for the past two years via monthly SIPs: `3,000 in Franklin India Taxshield, `2,000 in Mirae Asset Tax Saver, `1,000 each in Axis Long Term Equity and SBI Equity Hybrid, and `1,500 in HDFC Mid Cap Opportunities. My investment horizon is 15-20 years. Should I make any changes?

Investing via SIPs is the best way to build wealth over time. The funds you have selected have been good performers in their respective categories. This portfolio can see a compound annual growth of 12-14% over the long-term. Remember, investing in tax-saving funds will lock-in each SIP investment for three years. So, you may initiate systematic transfer plans out of these tax-savings funds after the three-year lock-in is complete and invest in diversified equity funds of the same fund house. Considering the tenure of your investment, you may reconsider your investment in SBI Equity Hybrid Fund and switch to SBI Magnum Multi-cap. Keep evaluating these funds annually and make a tactical shift, if needed.

Dinesh Rohira

Founder and CEO, 5nance.com

I am 29 years old and have been investing `2,000 per month in each of the following funds for the past two years: Reliance Tax Saver, Motilal Oswal Long Term Equity, Mirae Asset Tax Saver and Aditya Birla Sun Life Tax Relief ’96. Do I need to make any changes? All the funds you have invested in are tax-savings schemes and have a lock-in period of three years. Out of these four funds, Mirae Asset Tax Saver is a top performer, but the remaining three have been faring poorly, especially Reliance Tax Saver. You can instead invest in Kotak Tax Saver which has delivered higher returns compared to all the other three funds, across one, three, and five years. Besides Kotak Tax Saver, other replacement funds can be DSP Tax Saver and Canara Robeco Equity Tax Saver, both of which have delivered more consistent returns compared to Motilal Oswal Long Term Equity and Aditya Birla Tax Relief 96. You won’t be able to shift your existing investments as they will be under the lock-in period, but your fresh monthly investments can go into the new funds. Remember, the performance of all equity funds, including tax saver funds, varies with time. No fund outperforms all the time. So, make sure that you stick to your funds for 1-2 years before re-evaluating them.

Ankur Choudhary

Co-Founder and CIO, Goalwise

My NRI son owns two houses and I get the rent in my account on his behalf. Will I have to include this in my income, or will he have to file a tax return to show this income? What’s the process for an NRI to pay tax in India?

I am constructing a new house and have availed of a bank loan. Will I be eligible for income tax deduction on my home loan interest outgo on this second house?

You will be eligible for a deduction on the interest outgo on this house, provided the construction is completed within five years from the end of the financial year in which you took the home loan. The deduction can be availed starting the year in which the construction of the house is completed. The interest for the period during which the house was under construction can be availed in five equal instalments after the construction is completed. The maximum deduction on home loan interest is `2 lakh, if a house is self-occupied. If it is let out, there is no specified upper limit on interest deduction. However, the overall loss one can claim under the head ‘house property’ is restricted to `2 lakh only.

Shubham Agrawal Senior Taxation Advisor, TaxFile.in

I am 54 and I just left my job. I want to invest `50 lakh in mutual funds to earn a monthly income of `50,000. Please advise.

To earn a monthly, pre-tax income of `50,000 from an investment of `50 lakh, you need to earn a return of 12% per annum. While equityoriented mutual funds have the potential to deliver such returns, they tend to be volatile and are thus riskier. You can earn a regular income by investing the amount in debt funds and opting for systematic withdrawal plans (SWPs). An SWP allows the investor to choose the amount of money that is withdrawn from the scheme on a monthly basis. Remember, if your withdrawal rate is more than the fund’s return, your capital will start depleting. If you go for low-risk products—liquid or short-term debt funds—you can expect around 7-7.5% return. This will allow you to start an SWP of around `30,000 without eroding your capital. Only the capital gain will be taxed and not the entire SWP amount. Overall, the amount of withdrawal and the choice of the schemes for SWP depend on factors such as other sources of income, liabilities, taxation-slab and risk appetite which haven’t been mentioned by you.

Prableen Bajpai

Founder, Managing Partner, FinFix Research and Analytics

The owner of the house has to report the rental income. So, your son will have to report this income. NRIs are required to file income tax return in India, if their annual taxable income in India crosses `2.5 lakh. The return has to be filed through form ITR-2. Your son can claim deduction for municipal taxes paid to arrive at his net taxable rental income. From the net rental income, your son can claim a flat 30% standard deduction. It is important to note that Indian tenants paying rents to NRIs are required to deduct tax at source at 31.2%.

Archit Gupta, CEO, ClearTax

Ask our experts Have a question for the experts? [email protected]

tax optimiser The Economic Times Wealth July 29-August 4, 2019

Pay rejig can reduce tax to zero Sudhir Kaushik of Taxspanner.com tells readers how they can optimise their tax by rejigging their income and investments.

P

une-based IT professional Snehdeep Kawade has a low tax outgo even though his salary structure is not very tax friendly and he doesn’t avail of the tax deductions available to him. Even so, Taxspanner estimates that Kawade can reduce his tax to zero if his pay structure is rejigged, his company offers him the NPS benefit and he invests in the scheme on his own. Kawade should start by asking his company to replace the medical and transport allowances (which are now taxable) with some tax-free reimbursements like telephone and newspaper bills, food coupons and LTA. These perks are tax free against submission of bills and actual usage. If he gets `1,000 for telephone expenses, `500 for newspapers and food coupons worth `1,833 every month and `60,000 as LTA in a year, his annual taxable income will reduce by `1 lakh. Next, he should ask for the NPS benefit under Sec 80CCD(2). Up to 10% of the basic salary put in NPS is tax free. If his company puts `2,375 (10% of his basic) in the NPS every month, it will reduce his taxable income by `28,500. Another `50,000 can be shaved off if he invests that amount in NPS on his own. Kawade should buy a health insurance for his family. It will cost him roughly `16,000, which can further reduce his taxable income. The combined deduction of `1.94 lakh will reduce Kawade’s taxable income to `4.99 lakh, making him eligible for full tax rebate under Sec 87A. But he should avoid FDs and bank deposits as the interest can push up his income above `5 lakh.

INCOME FROM EMPLOYER INCOME HEAD

CURRENT

Basic salary

2,85,000

2,85,000

House rent allowance

1,42,500

1,42,500

Special allowance

4,66,700

3,72,400

Transport allowance

19,200

0

Medical allowance

15,000

0

Food coupons

0

22,000

Newspaper reimbursements

0

6,000

Telephone and internet

0

12,000

Leave travel allowance

0

60,000

21,600

21,600

Contribution to NPS under Sec 80CCD(2)

0

28,500

TOTAL

9,50,000

9,50,000

Employer's contribution to Provident Fund

ACTIONS TO TAKE

SUGGESTED

Reduce this taxable portion of the pay package. These perks are now taxable. Replace with tax free allowances. These perks are tax free on submission of actual bills and subject to reasonable limits and usage. 10% of basic put in the NPS is tax free.

INCOME FROM OTHER SOURCES Interest income

2,600

0

Capital gains

0

0

Rental income

0

0

2,600

0

TOTAL

Shift to debt funds to avoid tax on FD interest.

All figures are in `

Denotes suggestion to increase

Denotes suggestion to reduce

Tax-saving investments INVESTMENT OPTION

CURRENT (`)

SUGGESTED (`)

Provident Fund

21,600

21,600

Life insurance

14,500

14,500

1,20,000

1,20,000

0

50,000

1,50,000

2,00,000

ELSS funds NPS under Sec 80CCD(1b) TOTAL ADMISSIBLE

Other deductions EXEMPTION OR DEDUCTION

Medical insurance

Snehdeep Kawade’s tax Consider this new tax-saving option.

TAX ON SALARY

SUGGESTED (`)

0

16,000

HRA exemption

84,000

84,000

TOTAL

84,000

1,00,000

TAX ON CAPITAL GAINS

CURRENT

`43,035

CURRENT (`)

TAX ON OTHER INCOME

TOTAL TAX SAVED

`541 `43,576

0

`0 `NIL

PER YEAR

TAX RATIO

(Total tax as % of annual income) EXISTING (`)

SUGGESTED

`0

`43,576

0

4.5%

SUGGESTED (`)

0%

WRITE TO US FOR HELP Paying too much tax? Write to us at etwealth@ timesgroup.com with ‘Optimise my tax’ as the subject. Our experts will tell you how to reduce your tax by rejigging your pay and investments.

27

your feedback & more... 28

The Economic Times Wealth July 29-August 4, 2019

Readers’ response, online and in print, to ET Wealth stories has been enlightening. We pick some that add information and perspective to our articles from previous issues. Among the five stocks mentioned in the story, ‘Invest in stocks that scale new peaks often’, Titan Company is highly overrated. The stock is overvalued and a big correction is in the offing.

Avoid the debt traps

Sunilkumar Tejwani

The cover story, ‘Smart money moves for new earners,’ was very informative. It focused on smart ways of saving when you start working and earning. It also highlighted smart investment techniques for new earners who often fall into unnecessary debt traps.

Don’t invest in the stock market in the present scenario, what with LTCG and Budget 2019 announcements. You can expect to make some gains only after the government completes sale of stakes in PSUs. Anshu Prakash Satapathy

S.S. Vembakkam

Self-help is the best help. Hear what the experts are saying but still do your own

Logical Indian

This refers to the story, ‘Can parents evict their adult children from their house?’ It is only on paper. There are hundreds of cases pending with the district magistrate’s office in Delhi but no action is taken, resulting in more harassment for the senior citizens. The authorities are not concerned about senior citizens. Basant Jain

A sought-after area in Mumbai

REALTY

HOT SPOT

This location in south-central Mumbai hosts both residential and commercial properties.

Rd

Shri Saath Aasra Manmala Devi Mandir

Citylight Cinema

`24,970-42,550 Chhatrapati Shivaji Maharaj Park

Dadar (W)

Sai Baba Temple Hanuman Nagar

Tulsi Pipe

Mahim (W)

Matunga Road

Kings Circle

BMC Ward Office F Shradhanand North Cross Road

Cafe Madras Matunga Doctor Shantlal Doctor Harkant K Sanghani M Trivedi Chowk Chowk

Matunga (W) D Wing

Shree Akkalkot Swami Samarth Maharaj Math

ipe R d

Asavari

PRICE RANGE

HIGHLIGHTS

Mahim Lady Jamsetjee’s Rd. Inauguration stone 1846

Tuls iP

DADAR (W)MAHIM (W), MUMBAI

Railway Railway station: station: 2 km 45 km

Situated in South-Central Mumbai, it is a popular & densely populated residential-cum-commercial area A busy place, well-known for its shopping markets, Shivaji Park, Siddhivinayak Temple and Dadar Beach

WEH: 5 km

Good infrastructure such as Shardashram Vidyamandir, PD Hinduja National Hospital, Star Mall, Nakshatra Mall, etc Well-connected through Senapati Bapat Marg, Dr Annie Besant Road, Bandra-Worli Sea Link & the Suburban Rail

2 BHK: 1,087 (sq ft)

3.62 crore (avg)

24% 45%

Restaurants Restaurants14+ 20+

Banks 10+ 20+

Grocery GroceryStores Stores12+ 20+

Petrol PetrolPumps Pumps14+ 9+

SECTORS

Price

VALUES

(`/sq ft)

Dadar West

3 BHK: 1,984 (sq ft)

6.46

` crore (avg)

9%

6% 7%

9%

1.75-2 crore 1.25-1.5 crore 3.0-3.25 crore 2.25-2.50 crore Others

Consumer preference by BHK 10% 1 BHK

Hospitals Hospitals12+ 16+

1 BHK: 591 (sq ft)

1.87 crore (avg)

1.5-1.75 crore

26%

Schools 15+ 20+

PROPERTIES AVAILABLE `

Consumer preference by budget segment (`)

Centrally situated having proximity to the airport as well as major business hubs of BKC & Nariman Point

LOCALITY SNAPSHOT

Distance from:

`

The column, ‘Should you trust the expertise of experts?’ made a good read. The so-called experts are bought by the companies they speak on behalf of. So do not believe these experts.

encourage work from home schemes. There are many individuals who are sitting at home. They have Internet connection but in the absence of suitable opportunities, they cannot earn. Abroad, there are thousands of people earning by working from home. Why can’t similar opportunities be developed here?

This is in reference to the story, ‘How to change jobs when you are clueless’. The government should actively

Airport: 38 9 km km

The article, ‘Fight financial vulnerability’, struck a chord. The writer has candidly shared her childhood memories of her family running out of money as the end of the month approached. Our attitude towards money is largely shaped by the families we are born into. Nandakumar Venkatachary

Rameshwar Parsad

Demand: HIGH Supply: MID

Cosmic Astro

Sasmita Jena

This refers to the story, ‘Traded in F&O? Must use ITR3’. This is another way to increase bureaucracy in the system. If a person has traded in F&Os, why can’t the income tax department simplify the process of declaring it by just adding another column specific to it?

per sq ft

research. Otherwise, you will sink. Most of the experts and researchers promote companies on the basis of dubious figures. You must do your own fundamental and technical analysis. Scan financial statements and company reports. Track how share prices rise and fall and find out what are the factors responsible. If you can’t do all this, stick to fixed deposits.

Rental (`/month)

25,100-40,240

67,885-1,02,810

Matunga West 25,360-38,570

66,817-1,04,736

Mahim West

24,970-38,250

52,861-79,942

Mahim

25,990-42,550

56,471-87,087

64%

2 BHK 3 BHK

Consumer preference by covered area (sq ft) 4% 500-750

11% 15% 16%

1,000-1,250

54%

750-1,000 1,500-1,750 Others

In dia’s No. 1 P ropert y Sit e The Economic Times Wealth is available at an invitation price of `8/issue. To book your copy, contact your newspaper vendor or call 011 - 39898090; Email: [email protected]; SMS ETWS to 58888 The Economic Times Wealth, published by Bennett, Coleman & Co. Ltd. exercises due care and caution in collecting the data before publication. In spite of this, if any omission, inaccuracy or printing errors occur with regard to the data contained in this newspaper, The Economic Times Wealth will not be held responsible or liable. The content hereof does not constitute any form of advice, recommendation or arrangement by the newspaper. The Economic Times Wealth will not be liable for any direct or indirect losses caused because of readers’ reliance on the same in making any specific or other decisions. Readers are recommended to make appropriate enquiries and seek appropriate advice before making any specific or other decisions.

PUBLISHED FOR THE PROPRIETORS, Bennett, Coleman & Co. Ltd. by Rajeev Yadav at Times House, 7, Bahadur Shah Zafar Marg, New Delhi-110 002, Phone: 011-23322000, Fax: 011-23323346 and printed by him at The Times of India Press, 13 & 15/1, Site IV, Industrial Area, Sahibabad, UP. Regd. Office: Dr Dadabhai Naoroji Road, Mumbai 400 001. EDITOR: Babar Zaidi (Responsible for selection of news under PRB Act). © Reproduction in whole or in part without written permission of the publisher is prohibited. All rights reserved. RNI NO. DELENG/2011/37994. MADE IN NEW DELHI VOLUME 09 NO. 30